General strategies

  1. Profit maximisation. One strategy is to ignore market share and try to work out the price for profit maximisation. In theory, this occurs at a price where MR=MC. In practice, it can be difficult to work this out precisely.
  2. Sales maximisation. Aiming to maximise sales whilst making normal profit. This involves selling at a price equal to average cost.
  3. Gaining Market Share. Some firms may have a target to increase market share, this could involve setting prices as low as they can afford, leading to a price war. A similar concept to sales maximisation.

See: Objectives of firms

Pricing strategies to attract customers / increase profit

Pricing strategies to cement market share/market position

Pricing strategies to help determine the price

Importance of Elasticity


If demand for your products is highly elastic, cutting prices should lead to an increase in revenue. Increasing prices will lead to a fall in revenue.If demand is price inelastic, then you can increase your profits by increasing your price.

This is the logic behind price discrimination. Firms charge a higher price to that market segment where demand is more price inelastic, but a lower price to where demand is more price elastic.

What will determine the most effective pricing strategy?

The optimal pricing strategy will depend on the type of firm. For example, if you are considered to having a premium brand – cutting price could be perceived as disastrous as you lose your brand image, and fail to increase sales. For these products, it might be better to maintain premium pricing and optional pricing. For normal goods, with firms looking to increase market share and gain more market dominance, it is more important to offer competitive prices, through strategies such as penetration pricing and even loss leaders.

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