Question

Discuss the three common pricing strategies. How do firms employ each strategy? What are the main advantages and disadvantages of using such strategies?

Answer 1

We can say that three pricing strategies employed by businesses as part of their working model would include:

1. Predatory pricing

This type of pricing is utilized when a firm wants to bring about disruptive innovation in the industry in order to deal with the factor of competition in the present market.
They introduce a price which is so low that it is unsustainable for a company to compete with it over a longer term period, making it so, that the competition leaves the market or he segment throughout.

2. Penetration pricing strategy

This type of pricing strategy is utilized by a new entry into the market which sets the initial price for their product low, in order to attract a large number of customers and get a bigger market share initially but then raises the prices gradually to cover the cost.

3. Market skimming pricing strategy

This type of strategy is used for a high demand product where the company prices the product high initially to recover their cost and when they reach the required break-even point, decrease the pricing in order to create better profitability for them.