Pricing strategies are essential for a business organization to understand, as information technology affects how consumers perceive a product or service. Companies ofttimes chose a toll that is betwixt "one that is besides depression to produce profit and one that is besides high to produce any demand" (Kotler & Armstrong). Pricing strategies include, but are not limited to, toll-based pricing, value-based pricing, and competition-based pricing. Price elasticity is as well important to consider in setting prices.

Cost-based pricing considers the costs of producing, distributing, and the selling of a product in gild to prepare the price of the product. This strategy tin be finicky. If the company's costs are significantly higher than a competitor'due south price, the visitor will have to charge a higher toll. This tin disappoint consumer'south who exercise not run across better value in the product verses the competitor's product, and lead them to purchase the competitor's production at a lower price.

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In contrast, customer value-based pricing is all about setting a toll consumers are willing to pay before the marketing programme is designed. Before setting this price, the company must enquiry the value consumers place on the benefits they receive from a product, and if that benefit can be priced at a premium.

Contest-based pricing sets prices based on competitor's "strategies, costs, prices, and market place offerings" (Kotler & Armstrong). However, to use this strategy effectively, a visitor must compare and dissimilarity the value of the production they are offering and if information technology competes or is better than the competitor's offering. So, if the customer perceives that value to be of better quality, the company tin so charge a college price than the competitor.

No matter what strategy a company chooses, toll elasticity is an essential factor to consider. Cost elasticity is the "measure of sensitivity of demand to changes in toll" (Kotler & Armstrong).

The price elasticity of need is constitute past the following formula:

price elasticity of demand = % change in quantity demanded / % change in price

If a production is elastic, the demand will alter profoundly with a price decrease. However, if a product is inelastic, the demand will remain the aforementioned no matter if the toll increases or decreases.

A skilful example of an rubberband product is the Apple product line. When Apple tree outset comes out with a product, they charge a premium price for the people who actually want to buy it. However, most cannot afford or will non pay a loftier cost for an electronic. So, later on initial sales, Apple will lower the price. This creates a high demand for the production.

An case of an inelastic product is gasoline.. As we all know, gasoline prices fluctuate greatly. All the same, no affair the price, people will always need to buy gasoline. Therefore, gasoline is considered inelastic because the need does not change when the toll changes.