Pricing Strategies

This chapter consist of several sections. After an initial discussion of commonly used pricing strategies (i.e. cost-plus, competition oriented and willingness to pay based) in the first section, this chapter reviews a set of pricing strategies a firm could use to capture value from its heterogeneous customers; the essential ideas are based on the theory of price discrimination. These strategies reviewed include product versioning, quantity discounts, and product bundling as well as price promotion. In addition, this chapter includes a discussion of behavioral concepts that can explain various pricing strategies. The advent of the Internet opened up opportunities for using different subscription pricing models for services; these include flat rate pricing, per-unit pricing and non-linear pricing. The final section reviews some novel pricing strategies such as pay what you wish, pay for performance, neuro pricing and freemium pricing. The authors expect that this review chapter will be beneficial to pricing managers in order to gain competitive advantage and higher profitability.