Demand-Based Pricing

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Definition: Demand-Based Pricing

It is a pricing method based on the customer’s demand and the perceived value of the product. In this method the customer’s responsiveness to purchase the product at different prices is compared and then an acceptable price is set.

Some of demand based pricing methods are:

1. Price Skimming – Initial price is set very high so that only the customers with more purchasing power can buy the product. After that the price is reduced gradually so that the price-sensitive customers who were not able to buy the product at first can now buy. Finally the price at which the company can operate in profit is set up. This way a company gets ahead of any competition and by the time other companies can come to the market this company already makes the profit. Electronic products are priced this way.

2. Price Discrimination – Customers are charged differently based on different demand. For example the airline ticket prices increase as the travel date gets closer. Inelastic demand during the end makes the price very high. Another type of price discrimination is when customers in different markets/areas are charged differently for the same product or service.

3. Price Penetration – This is exact opposite to the price skimming. In this method the initial price is kept really low to attract more customers and increase the market share. Discounts, inaugural price, first 100 buyers etc are some of the methods.


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