Economy Pricing
Economy Pricing is the way that the company keeps its product’s selling price very low with minimum margin. The company believes that the lower product price compared to a competitor will increase its sales volume. They can archive this by decreasing overhead cost, marketing, and advertising expense.
Company willing low down their profit margin, but the net profit will not decrease as the sale quantity increase significantly. This strategy popular with commodity goods where they do not need to spend much on advertising expenses.
The selling price is the final price at which a product is sold. It includes all the costs associated with the product including the cost of goods sold, overhead, taxes, and the required margin. The selling price is important to consider when setting a price for a product, as it can have a significant impact on the total sale amount. The lower selling price will encourage the customers to purchase more. But it also reduces the seller’s profit as well. If the selling price is too high, the customer may be reluctant to purchase the product. The selling price must be carefully considered in order to ensure that both the producer and the customer are satisfied with the transaction.
Every business faces the challenge of setting prices for its products or services. There is no best pricing strategy for all businesses, and the right pricing strategy will vary depending on the industry, the market, and the company’s goals. However, there are a few general principles that can help to guide decision-making.
The main rationale for loss-leader pricing is to make generic and commodity-related products more consumer-centric in terms of lower prices. The hope is that customers will see the lower prices and be inclined to make a purchase, considering the savings associated with the product. Sometimes, businesses will also offer deals as an incentive for customers to choose their product over a competitor’s. While loss-leader pricing can be effective in driving sales, it can also lead to losses for the business if not properly managed.
Economy Pricing Example
This price strategy mostly works in the grocery industry, where the goods are very similar. The company produces an unnamed brand at a very low price. Generic groceries usually owns by the supermarket, and they can differentiate from other products due to a low price and the absence of a big brand name. They are a small brand which less known to the public due to the saving of advertising expenses.
The industry that uses Economy Pricing
Businesses use many different types of pricing strategies to optimize their profits and gain a competitive advantage in their respective markets. Economy pricing is one such strategy that involves setting low prices for products or services in order to appeal to price-sensitive customers. While this strategy can be effective in some cases, it is important to note that it may not be well suited to every business model.
Supermarket
It is important to consider the fact that supermarkets tend to have their own separate version of different popular brands. Many products sell at low prices because the supermarket has its own brand. The supermarket’s store brand is usually just as good as the popular brand, but it is often cheaper. For example, a can of soup at a supermarket might cost $0.79, while the same can of soup from a popular brand might cost $1.29. This is because the supermarket’s store brand is just as good as the popular brand, but it is often cheaper. Supermarkets’ store brands are often an excellent value for the price, so it is definitely worth considering them when making purchasing decisions.
Generic Drugs and Pharmaceuticals
Many pharmaceutical companies engage in economy pricing in order to increase their sale volume. This type of pricing involves setting a low price for a drug in order to encourage customers to be more proactive in their purchasing behavior. Economy pricing can be an effective way to increase sales, but it is important to consider the potential drawbacks before implementing this strategy. One downside of economy pricing is that it can reduce the profit margin of a company. Additionally, this strategy may also lead to lower-quality products being sourced in order to keep costs down. Overall, economy pricing can be a successful way to increase sales, but it is important to weigh the pros and cons before making a decision.
Airlines
Airlines use a variety of pricing strategies to maximize revenue and profits. One such strategy is known as economy pricing, which offers discounts to frequent flyers who book multiple trips. This helps to retain customers, as they receive a higher value compared to other airlines. Additionally, it encourages customers to book early and in advance, which helps to fill up flights and reduce last-minute cancellations. Ultimately, economy pricing is a win-win for both airlines and customers, as it helps to keep costs down while still providing a great experience.
Big box stores
Big box stores are large retail stores that offer a wide range of products in multiple niches. The most renowned big box stores are Walmart, Costco, Home Depot, IKEA, etc. They offer customers a one-stop shopping experience for everything from groceries to electronics to clothes. Because they sell such a wide variety of merchandise, big box stores are able to take advantage of economies of scale and offer low prices. This has made them very popular with consumers, but they have also come under criticism for putting small businesses out of business.
What are the Advantages of Economy Pricing?
| Economy Pricing Advantages | |
|---|---|
| To increase market share | This method will help the company to increase its market share significantly. The company still manage to have profit due to the decreasing of overhead cost and marketing expense. |
| Survival technique during the recession | During the economic downturn, most people will try to save money as much as possible. They will less likely care about brand name product as long as the products work well. Using this pricing, the company will manage to get some profit while the others are not. |
| To cover the fixed cost | The company will face massive losses if they stop operation, it is mainly the fixed cost. So it is better to produce mass products at a low price just to cover some part of the fixed cost. The company may still be making a loss, however, it is better than pausing the operation. |
What are the Disadvantages of Economy Pricing?
| Economy Pricing Disadvantages | |
|---|---|
| Low customers loyalty | Without proper marketing and brand, our market share will be quickly taken by the competitor. Our customers will move to the next product on the shelf which has a lower price. |
| Hard for small business to expand | The company cannot maintain this strategy when they try to grow their business. It only works well for small businesses. We cannot keep a low price if we sell our product in different markets or regions. The local competitor will find a way to beat us in terms of price. |
| Low product quality | The decrease in overhead costs may lead to an inferior product. The company will use low-quality equipment, less experienced staff, which will have an indirect impact on the quality as well. It will have a significant effect on the long-term business. |
| Increase competition | It will encourage the competitors to join the market when they see our success as it is easy to duplicate. Especially the small start-up company that does not have good brand name. They can produce a similar product at a low price and inject it into the market. |
| A high risk | With just a slight margin, this method will put the company into a high risk of failure. If a small thing changes, we will be in serious trouble. The newcomer, social change, consumer behavior, and many other factors can push our company into a crisis. A slightly low margin will hard for the company to stay in the market. |
Other Pricing Strategy
Price Skimming
Price skimming is a common pricing strategy in which a business charges high prices for a new product or service and then gradually lowers the price over time. The goal of price skimming is to maximize revenue in the short term by attracting customers who are willing to pay a premium for a new product. In the long-term, price skimming can help to build brand awareness and loyalty, as customers come to associate your brand with high quality. While price skimming can be an effective pricing strategy, it is important to carefully consider your target market and expected demand before implementing this approach. Otherwise, you risk alienating potential customers and damaging your brand’s reputation.
Premium Pricing
Many companies use premium pricing to increase profits. By charging a higher price for their product, they are able to make more money from each sale. This strategy can be effective in certain situations, but there are also some risks involved. For example, if the market is not willing to pay the higher price, the company may end up losing customers. In addition, premium pricing can also lead to perceptions of exclusivity, which may turn off potential customers. As a result, companies need to be careful when considering whether or not to use premium pricing. In many cases, it may be more beneficial to stick with a more moderate price point.
Penetration Pricing
Penetration pricing is a marketing strategy used to gain market share by offering a low price for a new product or service. The goal is to attract customers and encourage them to switch from competing brands. To be successful, penetration pricing must be combined with other marketing initiatives such as advertising and promotion. Otherwise, customers may simply wait for the introductory price to expire before switching back to their preferred brand. In addition, it is important to carefully assess the demand for the new product or service before setting the introductory price. If there is insufficient demand, even a low price may not be enough to attract customers. Ultimately, penetration pricing can be a powerful tool for gaining market share, but it must be used carefully to be successful.
