Economy pricing is a volume-based pricing strategy in which prices are set low and revenue is generated by the volume of products sold.
The idea of economy pricing is to reduce costs, e.g. for marketing and advertising, in order to set lower prices than the competition and to generate profits through high sales volumes. When calculating economy prices, the following formula can be considered: Price = production costs + profit margin. This strategy is suitable for products with low value and low production costs and is usually applied to make generic and commodity goods attractive.
What to watch out for
Economy pricing is not a sustainable price strategy in the long term:
This strategy relies on low profit margins and a constant volume of customers to secure revenue. When a competitor lowers the price of its product, consumers switch to the competitor's product - unless you offer an even lower price.
Economy pricing is not suitable for small or new companies:
Small or newly established companies usually face high fixed or variable costs. Large companies, on the other hand, can use this price strategy due to economies of scales.
Sources & further reading
What is Economy Pricing - And How does it work (Explained with Examples) - Wikiaccounting
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