Question

discuss three pricing strategies a bidder could adopt in the market to increase its chances of success

Answer 1

Three pricing strategies that a bidder can adopt are:Price Skimming, Neutral, Penetration. We discuss them as follows.

Price skimming: In this strategy initially a product or service is placed in the market at a high price. As the life cycle of the product reaches towards saturation or maturity price is gradually reduced. It helps the the seller to recover the fixed costs or sunk costs early in the product life cycle. It is mainly used when a new product is launched in market. It tries to capture the market early when competition has not entered the market. The goal is try to gain as much revenue as possible in the beginning when demand is high and there is less competition. Prices are gradually lowered as we go down the product life cycle in order to survive in a monopolistic competitive market.

Neutral: In this strategy the price of a product or service is determined by the market. This strategy usually works with monopolistic competition. The price stays the same throughout the product life cycle. In this type of pricing the firm can increase market share by introducing artificial differences to their product or service that appeals to the consumers.

Penetration: In this strategy a product or service's price is set low in the beginning in order to capture market share. The thought process is that because of lower price than other products of the same segment the consumers will switch from other brands to this brand. In the later stages of product life cycle prices are brought back to normal levels. The risk is that keeping the consumers loyal to the firms brand once prices rise to normal levels.