Short term strategies
Short term strategies are:
- Setting a high price which aims to maximise profit.
- Setting a low price for a short period of time, in order to maximise sales.
- Setting a price which relates to the demand for the product. High when in demand and low when demand is low.
- Setting a price below a profitable price in order to eliminate competition.
- Setting a high price in a market with few competitors, but then lowered to target new customers.
Penetration pricing
Penetration pricing is used to enter a new market. The price will be set lower than competitors to gain market share. Once a product becomes established the price will increase to be more like the market price.
Promotional pricing
This short term pricing strategy is when prices are reduced for a period of time. This is often used to attract a lot of media interest or to help clear old or obsolete stock, for example during January sales.
Demand-orientated pricing
This short term pricing strategy is used when demand for a product or service may change due to changes in consumer demand. This means that you may pay different prices for the same product or service at different times of day or at different times of year. For example:
- Train tickets have different prices for peak times (like the morning rush hour) and off-peak times (during the day when there is less demand).
- A hotel in Spain can charge more for a room in August when more people are looking for a summer holiday in warm weather than it can in February when fewer people take a holiday and the weather is less reliable.
Destroyer pricing
Destroyer pricing is used to eliminate competition. It involves a business setting a very low price in order to attract customers away from competitors, who will struggle to match the low price and may go bust. Usually only large businesses can use this strategy as they can withstand the losses for a longer period than small businesses can. Destroyer pricing is illegal in the UK.
Market skimming pricing
A new product is launched at a high price. At this early stage those people who “must have it” will buy the product despite its price. In this way a business is said to “skim the cream” from the top of the market.
Once the sales start to slow, the business will begin to lower the price so that more customers can afford their product. This short term pricing strategy can only work when there are little or no competitors in the market.