Blog

Penetration is used when prices are set first low to attract new customers and to gain market share, and then the price is increased after the market share has been achieved. To penetrate the market and gain market share, international businesses set a low price in comparison to other competitors. Note that also the low price is sometimes perceived as an indication of a low-quality product. It may also be difficult to increase prices in the future without incurring a loss. Marketing functions such as transportation, storage, financing and dissemination of market information, have a great bearing on the type of market structure. Recent policy encourages group marketing or operation of producer groups and this is likely to reduce the number of buyers and/or sellers actually taking part in marketing functions.

As an exporter, while calculating the cost of your product, you need to add up all the expenses that you have incurred from collecting raw materials to manufacturing the final product that reaches your customer. For instance, if you are an apparel manufacturer-exporter, the total cost will start acquiring machinery, material for clothes to packaging, labour and delivery. Becoming thought leadership and acquiring a top position in the export market is an important factor, in order to make the export pricing work.

• Instead of increasing the prices later on, like penetration pricing, the competitive pricing model continues to adapt according to the change in competitor pricing strategies.
• Another example would be Gucci, a fashion brand endorsed by celebrities, which makes their premium strategy a trusted one over many other brands in the same niche.
• The price established by the price ceiling must be less than the price of natural equilibrium for the measure to be effective.
• But there are fundamental approaches to creating pricing strategies for your business.

One classic example of this is ordering combo meals at leading fast-food joints. This gives customers more value for their money and encourages them to make larger purchases. Cost Plus Pricing is a very simple pricing strategy where you decide how much extra you will charge for an item over the cost. On the other hand, bargain hunters may only look for the lowest cost possible, without regard to the overall quality or longevity of the item. Learning how to deal with price-sensitive customers helps improve sales and customer service initiatives.

Economy Pricing:

This tactic offers numerous pricing options for comparable products in an effort to increase sales for a business. These players have capabilities, capital and economic resources. CCI concluded that Reliance Jio has not abused its dominant position so prima facie there is no case against Reliance Jio. The issue was that OLA was offering heavy discounts to its customers and its cab drivers were also given good incentives.

In agricultural-oriented developing countries like India, agricultural marketing plays a pivotal role in fostering and sustaining the tempo of rural and economic development. Although this strategy is hard to sustain, competitive pricing strategies can benefit wholesalers and manufacturers who can limit production costs and streamline their supply chain. That way, they can maintain competitive prices and retain customers. Economy pricing is closely related to competitive pricing and relies on lowering production costs to lower prices, regardless of their competitor’s pricing strategy. Penetrating the market with an exceptionally low-priced item creates a broad customer base.

Simple Steps For A Successful Brand Building Process

Generally, customers pay more prices for product which is of the new style, fashion, better package, etc. In order to attract customers, different characteristics are added to the product, such as quality, size, color, attractive package, alternative uses, etc. A seasonal account is the third form of discount, being a price reduction to buyers who buy merchandise or services out of season.

The extent of concentration represents the control of an individual firm or a group of firms over the buying and selling of the produce. A high degree of market concentration restricts the movement of goods between buyers and sellers at fair and competitive prices, and creates an oligopoly or oligopsony situation in the market. By making the cost of production a factor in the final price, the cost-plus pricing model can encourage businesses to look for ways to reduce costs and increase efficiency. This pricing method can help businesses identify areas where they can reduce costs, as they can see exactly how much each production component contributes to the overall cost. By understanding their costs in detail, businesses may be able to identify opportunities to negotiate better prices for raw materials or streamline their production processes to reduce waste.

The purpose was not to prevent competition but to stop the unfair trade practices which lead to monopolies and dominant positions in the market. The Competition Act also states that anti-competition agreements are void as it has an adverse effect on the market. The Competition Act was amended twice once in the year 2007 and then in the year 2009. Additionally it was observed that DPAG adopted a strategy of fidelity rebates which had the same effect as the exclusive purchase obligations. The strategy in relation to fidelity rebates deterred mail-order traders from setting up alternative delivery structures as that might conflict with their duty of fidelity and thus jeopardise the special price. This prevented the development of potential competition from alternative infrastructures.

In such a situation, any increase in the production of marginal and small farms should first result in increased on-farm consumption. You can even keep your pricing flexible to quickly adjust your prices to changing market conditions. For example, if your competitors are offering discounts or promotions, you should be able to adjust your prices to remain competitive. You should also be able to adjust your prices to take advantage of any seasonal trends or changes in customer demand. Measure your sales performance and customer satisfaction to figure out what works best. Predatory Pricing is a complex form of an anti-competitive conduct.

Lawyers in India – Search By City

From the marketing point of view, this surplus is more important than the total production of commodities. The arrangements for marketing and the expansion of markets have to be made only for the surplus quantity available with the farmers, and not for the total production. This is because, only a portion of the total production is sold in the market after personal consumption by the members of farm household and retention in the farm for several reasons.

In the alternative, the Informants have stated that it is not necessary that only one entity can be dominant in a particular relevant market. There is a possibility of two entities exercising dominance at the same time. The DG noted that in the absence of dominance of an entity, the question of abuse would not arise. Thus, DG opined that both Respondent and Uber have adopted ‘below-cost pricing strategy’.

In the premium Pricing Strategy, the prices of goods and services are a bit higher than the general prices. Some people may have a perception that if the price of the product is high, then only the quality maintains up to the mark. If anyone announces a discounted sale or half price, they even suspect the reliability and quality of that product. Especially for those people, the premium Pricing Strategy was used at the same time they needed to maintain the quality, which means that price. Growth in producers’ surplus determines the pace of economic development. If the pricing strategy works well and buyers start flocking to your stores, you may need some help to streamline all your payments and settlements.

This allows customers to choose the version that best suits their needs and budget. Service providers like software companies and travel agencies typically use a tiered pricing method. United Parcel Service (“UPS”) alleged that DPAG was using revenue from its profitable letter-post monopoly to finance a strategy of below-cost selling in parcel services, which are open to competition. Without the cross-subsidies from the specified area, DPAG would not have been able to finance below-cost selling there for any length of time. UPS therefore called for a prohibition of sales below cost and the structural separation of the reserved area and the parcel services open to competition.

Penetration Pricing Strategy is one of the three major Pricing Strategies. Generally, it is used by the new traders to gain a foothold in the market. The sellers wanted to attract more customers by decreasing the price of the product. So that the customers can show interest in purchasing them and they can know the users and the quality of that particular product.

Penetration-Based Pricing

However, building a pricing strategy should always account for market conditions, buyer behavior, and the unique value that you offer to consumers. You have to take competitive advantage of the industry by studying other similar goods and services and how they achieve the best results. When a company offers a new product at a very low price to gain significant market share or to garner consumer attention, it is called penetration-based pricing. Even new firms use this tactic to build brand awareness—the underlying goal being aggressive marketing to push a major market share along the sales funnel. 2022 Firstguide report states that at least 70% of businesses worldwide migrated online in 2021, disrupting the balance in prevalent pricing and distribution strategies. This has resulted in Internet-only retailers being able to sell their products at much lower prices than their store counterparts.

This is a factor which is on the competitive price meaning side of the perfect market. Usually, suppliers may face restrictions to enter a market, such as the exclusivity of the product, patented products, governmental intervention, cost requirements, etc. In other markets, these are problems that suppliers will most likely face, but in perfect competition, none of these barriers exists.

Which Businesses Use the Cost-Plus Pricing Model?

Customers are particular about the quality and prices of the product they are planning to buy. If a product is well differentiated from other brands within the industry with good brand recognition, manufacturers are usually in a comfortable position to charge higher prices. Famous brands command higher prices due to their image and goodwill. That’s all the more reason to research before you set the pricing on goods or services.

The biggest advantage of a premium pricing strategy is that it returns a higher revenue than production costs over a short duration. Penetration pricing strategies are widely used by food & beverage companies, restaurants, or even vendors in your local neighborhood. They start with a flavorsome dish available at low prices and gradually increase the price as more people consume their food. Once they have achieved market penetration, their pricing strategy is guaranteed to generate a higher ROI. The firm is a ‘price taker’ means that the sellers have to ‘take’ the price that is given to them by the market forces, i.e. demand and supply.

By succeeding in doing this, the competition has a dominant position in the market. The strength of the competitor in the relevant market decides his position in the market. Companies will never agree that they have slashed the prices to eliminate competition and would argue that the measures which they have taken are to be competitive. In common parlance, Predatory pricing may be defined as pricing below an appropriate measure of cost for the purpose of eliminating competitors in the short run and reducing competition in the long run.

Price sensitivity is the degree to which demand changes when the cost of a product or service changes. That means honoring existing pricing where applicable, understanding limitations on what can be offered, and still emphasizing value in product quality and customer service. With the customer on board with the new company, the new company must slowly make changes and gradually raise prices to more profitable levels, else it will face the risk of losing the long-term value. CCI considered the size and resources of the competitors rather than the market share of OLA and opined there was no abuse of Section 4 of the Competition Act. Whether NSE has directly or indirectly imposed unfair predatory pricing in the sale of services.

• An understanding and knowledge of the market structure is essential for identifying the imperfections in the performance of a market.
• In a way, all markets are imperfect or monopolistic rather than being perfect markets.
• Ramsey pricing reduces to marginal cost pricing if all companies produce with constant returns to scale and must break even.

For example, a consumer visits the same hotel for dinner every time, because according to their experience coffee is good and worth the cost. For consideration, do you ever think about what made your favorite fashion store your favorite outfit. Or, what decides the number of articles of the same kind to be produced. Or, what maintains the gap between the demand and supply force of the market.

There was tough competition between Ola and Uber and the taxi service market was competitive. CCI held that Uber was not in a dominant position and closed the case under Section 26 of the Competition Act. Later, Supreme Court noted that Uber was involved in predatory pricing as it was providing huge discounts to its customers and high incentives to its driver-partners.