Extension Pricing - Definition & Meaning
What is Extension Pricing?
Extension pricing is a strategy where a company has standard prices for its products across all locations and geographies irrespective of any other factors. In such a case, shipping, taxes and other expenses are covered in the standard price. It is one of the pricing strategies used by companies. It covers virtually all costs associated with production that may arise. It is also called ethnocentric pricing.
Advantages of extension pricing:
• Extreme simplicity because no market or competitive conditions need to be taken into consideration
• Additional expenses like shipping, packaging, taxes, etc. are covered, no matter where the location is
• Consumers are familiar with the product and its price wherever they buy it
Disadvantages of extension pricing:
• This pricing policy does not respond to the market and competitive conditions of different markets
• There is a possibility of incurring more cost than the price of the product in remote locations
• The products priced under this policy are not eligible for sales and discounts
• Not being able to be sold in clearance sales at lower prices may lead to the products stocks not being cleared at all
The goal of extension pricing is to balance out the costs in all the locations, by standardising the price and hence make a good profit.
For example, when Reebok entered the Indian market in 1995, they were unable to decide upon pricing because of the less percentage of our population being ready to spend on expensive sports shoes. Later they decided it would be extension pricing and to their surprise, there was a good response in spite of the price.
Hence, this concludes the definition of Extension Pricing along with its overview.
This article has been researched & authored by the Business Concepts Team. It has been reviewed & published by the MBA Skool Team. The content on MBA Skool has been created for educational & academic purpose only.
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