Question

Compare and contrast the three major approaches to pricing strategy.

Answer 1

The three major pricing strategies are customer value based pricing, cost based pricing and competition based pricing. Depends on the price chosen, it falls among ‘price ceiling’ (too high) or ‘price floor’ (too low) and it all depends on the customer perception about the product value he or she perceives. And customer decides on the product for worth of the price he or she pays. Hence, when customer buy a product then there is an exchange of value (i.e. price) and get the product value (i.e. benefits) rather than the seller cost, is the customer value-based pricing. For example, selling potato chips or beer at cricket tournament. If we see customer’s perception of value is essential to set the seller cost and which is the key for cost-based pricing (i.e. cost which company charges for production inclusive of effort and risk associated for the fair rate of return). For example, premium products offered by Apple. When the pricing includes the competitor’s strategies and market offerings and customer decided on the prices which competitor charges for the similar type of product, is the competition based pricing. For example, making product to be sold at retail outlets. Hence, overall all the three major strategies depends on the customer perception of value and product cost.