Question

Why would a company seek to position themselves as low price or high price item in the market place? How might this affect sales dollars, sales volume, and profits? Search and review your course materials for pricing strategies. Search specifically for the word pricing. Summarize the concepts and issues from the course materials.

Answer 1

Low price strategy by company:

Penetration pricing is in favor of using a low price as the principal instrument for penetrating mass markets early. Low price policy is introduced for the sake of long term survival and profitability. This method is used for pricing a new product and to popularize it initially. Profits may not be earned in the initial stages. However, prices may be increased as and when the product is established and its demands picks up. Sales volume is usually high as the price is low. Sales dollars is low due to lower price. Profits it usually low due to lower pricing in initial stages.

High price strategy by company:

Skimming pricing is a policy of highly pricing a product at the entry level into the market and reducing it later. It is used when market is price sensitive, demand inelastic or to recover high promotional costs. The gradual reduction in price in the latter years will tend to increase sales. Sales volume is low due to higher pricing of product. Sales dollars is high due to higher pricing. Profits is usually high per product due to higher pricing.