Benefits and limitations of pricing methods
Cost plus
benefits
- Simple
Limitations
Customers expectations and local differences are ignored if the same proportion is utilized for all products.
Competitive pricing
Benefits
Price matches customers expectations.
Limitations
In terms of price, the company gains nothing.
A set proportion for all products
Psychological pricing
Benefits
Encourages higher priced sales.
Limitations
This strategy does not easily persuade modern clients.
For both the consumer and the firm, simple, whole-unit pricing ($100) is more convenient.
Penetration pricing
Benefits
Aids a company's sales in competitive markets.
Limitations
Customers may expect a low price to remain low after it is set.
Price skimming
Benefits
Limitations
Assists the company in making the most profit possible early in the product's life cycle.
For certain customers, the price may be too expensive.
Promotional pricing
Benefits
In the short term, it is possible to enhance sales.
Limitations
Profit margins are reduced for the duration of the promotion.
Dynamic pricing
Benefits
Customers may object to paying various rates at different times, and they may refuse to buy if they do not believe they are getting the greatest bargain.
Limitations
Assists in maximizing revenue.
The low pricing may clash with the entire brand image, causing sales to suffer.
Can assist in the creation of a premium/high-quality image.
Due to low sales, a price drop early in the product life cycle might harm the brand's reputation.
Can help to raise brand awareness.
Can prevent customers from purchasing competitive goods if they have already stocked up on a company's goods.
Customers are not permitted to purchase the product unless it is "on sale".
It's possible that the brand's image will suffer.
Can ensure that a company's capacity is appropriately utilized by cutting prices.