What are Types of “Product Pricing Strategies” in Management Accounting?

Pricing strategies adopted should be consistent with business objectives. Price strategies are used to control market share, stakeholders (customer and government). Organization may have cultural and ethical viewpoints; pricing strategies should be adjusted for such things. These strategies do not consider these values and beliefs on their own. Some Pricing Strategies are:

No-frills Pricing

This type of pricing is associated with product having only basis features. It targets price sensitive customers requiring no luxuries. Profit margins are not reduced; perhaps costs and quality are reduced.

It is adapted by small to medium sized business having fewer resources to compete with large businesses.

Price Penetration

Price penetration is about charging very low prices to build market share and discourage competition. It reduced profit margins to attract customers while costs and quality remains intact. Price penetration is long term strategy may be influenced by factors like selling of winter goods at begin of the winter at highly reduced prices to discourage imported goods suppliers. Profitability is achieved through economies of scale and internal efficiencies. This strategy may be adopted by risk averse businesses.

Discounted-pricing

Discounted pricing seems similar to price penetration but the extent to prices is decreased in discounted- pricing is lesser than price penetration. Price discounting is a short term strategy may be influenced by seasonal factors like selling of winter goods at low prices to empty the stock before season is off.

Price Skimming

Price Skimming is opposite to price penetration. Price skimming is about charging extra ordinary high prices to customer. This types of strategy is associated with innovative and luxury goods having short product life cycle, so that development expenditure can quickly recovered by obtaining cash flows from those segment of society able to very high prices to maintain their status. This types of strategy is suitable for business having cash flow problems. This strategy is also adopted by risk taker businesses.

Premium Pricing

Premium pricing seems similar to price skimming. Premium pricing charges only quiet high prices. It is adopted because product is different in term of features and higher in quality than products offered by competitors. Premium reflects the difference in product quality. Like blackberry mobile phones are relative expensive because of its features and quality,

Captive Product Pricing

Captive product pricing is about is selling of main products at low margins even at loss, with intention of earning by selling its closely related (like spare parts) Products at high margins. Ex. Selling cars at lower prices while gear boxes at higher prices. Once the customer has brought the main product, they have no option except to replace the original product.

Optional Product Pricing

Optional product pricing seems like captive product pricing. In optional product pricing products are not closely related to main product. In it customers are not forced to buy the subsequent products from the same supplier. Ex. Selling computers to customers at low price with a hope, they will buy peripherals such as monitor, keyword and mouse also from them.

Price Segmentation 

Price Segmentation is about charging different prices to different market segments. Business may classify the market segments by geo-location, age, sex, time. Like Bpp and Kaplan charges low prices for its learning materials in developing countries. Some restaurants sell foods at reduced prices after 12 am.

Bundle Product Pricing

Various complementary goods or service like blender and juicer , audit and tax are offered as a package. This strategy is relevant to business selling range of products to obtain cross-selling benefits. Combined cost of audit and tax will be lower due to not having to do tax calculations from begin; work done on audit job can be utilized to perform tax job. Similarly, combined cost of blender of juicer will be lower as component of blender can be used for juicer too.

Full Cost Plus Pricing

Full cost plus pricing is the traditional form of pricing by adding mark-up to the full cost (direct and indirect costs). This is long term product price by ensuring all costs will be recovered. This is relevant to product where there is no existing market or price of the product is to be recovered from one or few units combined. Ex, biding for the tender of building construction, Generally no market exist for building construction as each building is different from others.

Marginal Cost Plus Pricing

Marginal or variable Cost Plus Pricing is used for short term decision making. Like customer has made an offer to buy some units at reduced prices. It is not suitable for long term pricing as recovery of fixed cost may not be possible.

Competitive Pricing

Use the price of the competitors to price products. This is applicable where products are similar in nature in terms of quality, size and weight like peanut cookies and coconut cookies 50g pack.

Product Line Pricing

This Pricing strategy takes account of whole product range before prices are set. Retailer selling pen recognizes that customer may buy refills too, so he/she might attempt to increase the combine revenue from these products.

Psychological Pricing

Psychological Pricing attempts to take advantage of the human psychology. In the absence of other information about product quality, people tend to judge the quality with price. In case of highly innovative products customer are less able to judge the product quality, so business may try to make an impression by packaging and price. Ex, cosmetics have more packaging cost than the cost of contents. Similarly, Educational institutes might charge high prices to give an impression of quality.

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