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It's basically a pricing strategy aimed at achieving either or all of the three aims - 1. acquire new customers; 2. drive out competitors and 3. create entry hurdles for potential new competitors.
Under this strategy, the manufacturer of products or supplier of services will set the prices so low that it will undercut other players in the market leading to either their exit (if they are not in a position to reduce their prices) or could result in a full fledge price war since the other players will also adopt this strategy as a counter measure. Ultimately the market place will experience exits from some of the players or /and intervention from the authorities who want to ensure a fair playing field without giving rise to any de facto monopolies.
Predatory pricing is difficult to prove since each vendor / manufacturer is free to decide what mark up he/she wants to have over his/her costs. However, setting the prices too low may lead to protests from other players and possible regulatory action against such vendor /manufacturer.
Predatory pricing is also known as undercutting or under pricing.
the predatory pricing involves pricing product below cost to destroy competitors and dirive them out of market and it is considerd illegal . there are two conditions for pricing to be predatory
1. setting prices below the appropriate measure of costs
2. the seller has the intention of recovering his losses in the fututre through increasing prices or increasing his maket share
Predatory pricing generally means pricing below any other competitors and perhaps pricing below your true economic costs to provide the product or service.
The "cost" of employing predatory pricing generally fall into two camps:
1) it may be illegal. Many countries consider predatory pricing to be 'anti-competitive' and thus, illegal.
2) if it's legal, the other cost is the future earnings you lose because you have priced too low. You may spark a price war, depressing prices further. Even if competitors do not follow you (e.g., no price war), you may be generating less revenue and gross margins because you are pricing lower than you need to get the same unit sales. Simply cutting price ignores segmentation and different customers having different willingness to pay. This is where your brand, marketing and selling techniques allow you to make more money by not cutting the price.
The predatory pricing is the most agrresive pricing to kill the competiton and enjoy 100% market share.It need a muscle power with the company who can withstand the initial burden on this.
Like example In India the Jio Telecom gave very very agressive pricing and able to win 60% market share and and started earining profts within 18 months of operaions.
Predatory Pricing which we offer to our customers. It should cover all the expenses and Margin .
Purchase Price , Fresight, Customs Duty, Clearing Expenses, Operational Cost, Rebate ( If ), and Margin all are invoved in the Predatory Pricing.
A pricing strategy to counter the competitors by offering low price for the goods or services.
It involved some unethical production methods.
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