Even a non-profit or not-for-profit company has to make a certain amount of money in order to continue. If you own a for-profit company, you’ve got to be making money. This means that no matter who you are, you need to understand every aspect of your business when establishing price. If you forget to allow for certain costs and sell the product at a loss, your stakeholders won’t stand for it.
On the other hand, some products are deliberately priced at a “deal” price (also known as a loss leader) to draw people in to the store where they will be sold other products. A car can be priced below cost, but by the time the extended warranty, roadside service, fabric protection, and chrome package are added, there is no loss for the company any longer.
Psychological pricing is what has stores using prices that end in 95 or 99 cents. The idea is that people will pay $39.99 for a product they won’t pay $40.00 for.
In a competitive market, you will see marketing strategies that will meet or beat a competitor’s price in order to gain (or regain) market share. If you pick up a flyer and see the phrase, “We will match any competitor’s advertised price and beat it by 5% on all our products,” you are witnessing meet or beat competition in action.
Price and quality are things that must always be considered in pricing services and non-tangible products. If you have a service and price it very cheaply, people may not value what you offer in terms of the knowledge and expertise that is required to develop that service.
Penetration refers to introductory pricing that is deliberately low in order to gain market share. The idea is to price products at a low per unit amount and then sell a high number of units with the objective of gaining recognition in the market.