The three types of pricing strategies are skimming, penetration, and competitive. Skimming pricing strategy is defined as a pricing strategy involving the use of a high price relative to competitive offerings (Boone and Kurtz, p641). Skimming can be used to introduce a new product slowly. This allows the distribution process to be able to keep up with the market. Sometimes called market-plus pricing, intentionally setting a relatively high price compared with prices of competing products (Boone and Kurtz, p641).
When using this strategy, a company purposely assigns an exorbitant price to the product to set it apart from other products of the same kind. This can be useful to a company that believes that their product is superior to others in that market. They want to attract customers that look at the high price as meaning a superior product. Penetration pricing strategy is defined as a pricing strategy involving the use of a relatively low entry price compared with competitive offerings, based on the theory that this initial low price will help secure market acceptance (Boone and Kurtz, p642).
When a company wants to introduce a product in a market that has a lot of competition, they may choose to offer it at an introductory price that is lower than the competition (Boone and Kurtz, p643). After the initial offering, the price goes up to the current market price. This allows the company to get their product from an unknown brand to one that is easily recognized. A store promotion may be used to get customers to shop at their stores by offering low sales or low to zero interest.
Everyday low pricing is linked to penetration pricing strategy. With everyday low pricing retailers continuously offer low prices rather than relying on sales or rebates (Boone and Kurtz, p643). Retailers pledge to have the lowest prices. If they do not have the lowest price, they will price match their competitors. Competitive pricing strategy is defined as pricing strategy designed to de-emphasize price as a competitive variable by pricing a good or service at the level of comparable offerings (Boone and Kurtz, p644).
The organizations are all competitively priced; therefore, the organizations concentrate their efforts to gain customers on the product, distribution, and promotion (Boone and Kurtz, p644). This allows organizations to promote their products without worrying about the price. Another aspect of competitive pricing is opening price point. That is setting an opening price below that of the competition, usually on a high quality private label item (Boone and Kurtz, p644).
When organizations use this strategy they are usually promoting their own private label. They price the private label below the competition allowing them to attract customers to their label. If I were trying to promote a gasoline additive that boosts automotive mileage, I would use the competitive pricing strategy. Most gasoline stations in the area have the same price per gallon. That sets the precedence that the gasoline stations must concentrate all their efforts on the product, distribution and promotion.
The gasoline additive would promote better fuel efficiency and may get customers to come in to purchase their gas exclusively at that station. The price of the additive would need to be determined before I could make a decision as to using competitive pricing strategy. The price of the additive may need to be added to the price of gasoline. If this were the case, then I would use the skimming pricing strategy. The consumer would need to pay more for the gasoline than at other gasoline stations. However, it would be a superior product.