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Demand oriented pricing

Demand-oriented pricing is a strategy that focuses on consumer demand and willingness to pay, rather than strictly on costs. By setting prices based on what customers are likely to pay, retailers can maximize revenue while responding to market conditions. Below are the main types of demand-oriented pricing.

1. Dynamic Pricing

  • Definition: Adjusting prices based on real-time demand, time, or customer segment.
  • Purpose: Matches supply and demand to maximize revenue.
  • Example: Airlines frequently change ticket prices based on seat availability and the time remaining until the flight. Similarly, ride-sharing services use surge pricing to increase fares during peak demand times

2. Price Discrimination

  • Definition: Charging different prices to different customer groups based on their willingness to pay.
  • Types of Price Discrimination:
    • First-Degree: Charging each customer the maximum they are willing to pay.
    • Second-Degree: Offering discounts for bulk purchases or tiered pricing.
    • Third-Degree: Setting prices based on identifiable groups (e.g., student or senior discounts).
  • Example: Movie theaters often charge less for children and seniors than for other adults, capturing additional sales from these groups

3. Promotional Pricing

  • Definition: Temporarily reducing prices to increase demand and customer traffic.
  • Purpose: Used to boost sales volume or clear out excess inventory.
  • Example: Seasonal sales like Black Friday encourage higher spending during short promotional periods by offering steep discount.

4. Yield Management

  • Definition: Pricing strategy used primarily in services with fixed capacities, like hotels or airlines, to maximize revenue by adjusting prices based on forecasted demand.
  • Application: Prices are adjusted dynamically based on booking patterns, competition, and market demand.
  • Example: Hotels increase room rates during high-demand periods, such as holidays or large events, and offer lower rates during off-peak times to fill vacancies

5. Odd Pricing

  • Definition: Setting prices just below a round number (e.g., $9.99 instead of $10).
  • Purpose: Creates the perception of a lower price and encourages purchases.
  • Theory: Customers see $9.99 as significantly lower than $10, making them more likely to buy.

6. Prestige Pricing

  • Definition: Setting higher prices to create an image of exclusivity and quality.
  • Purpose: Targets customers who associate high prices with higher quality or status.
  • Example: Luxury brands like Rolex or Tiffany & Co. use prestige pricing to maintain a high-end image and attract customers seeking exclusivity.

7. Price Lining

  • Definition: Offering products at several distinct price points within a product line to cater to different customer budgets.
  • Purpose: Simplifies choices for customers and captures a broader audience by providing multiple options.
  • Example: A retailer might offer basic, mid-tier, and premium versions of an electronic device, each at a different price point.

Demand-oriented pricing allows retailers to maximize revenue by aligning prices with customer demand and willingness to pay. By understanding and applying these techniques, retailers can adapt their strategies to optimize profitability and meet varying customer expectations.

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