8 - Pricing Strategies Flashcards
new product pricing strategies
- > introductory phase: challenge of setting prices for the first time
1. market skimming pricing
2. market penetration pricing
market skimming pricing
sets high initial prices to “skim” revenue layers from the market
- should not be very easy to competitors to enter market and undercut the high price
- usually w/ tech products, because NDP can be very expensive
- used to cover costs of production
- price is reduced as the novelty wears off and as substitute products appear.
market penetration pricing
setting low price in order to attract a large number of buyers + market share
- high sales volume = falling costs, allowing companies to cut their prices even further
product mix pricing strategies (5)
product line pricing
optional product pricing
captive product pricing
by-product pricing
product bundle pricing
product line pricing
takes into account the cost difference between products in the line, customer evaluations of their features and competitors’ prices
eg. Starbucks cup sizes
optional product pricing
takes into account optional/accessory products along with the main product
eg. phone cases
captive product pricing
sets prices of products that must be used along with the main product
eg. Nespresso coffee capsules
in services: two part pricing = fixed fee + variable usage rate
eg. disney you pay ticket but don’t have to pay for food
by-product pricing
refers to products with little or no value produced as a result of the main product
- makes main product price more competitive
eg. coffee shop sells the used ground coffee
product bundle pricing
combines several products at a reduced price
eg. pack of 3 shampoos for the price of 2
price adjustment strategies (7)
discount + allowance pricing segmented pricing psychological pricing promotional pricing geographic pricing dynamic pricing international pricing
discount + allowance pricing
reduces prices to reward customer responses such as making volume purchases, paying early or promoting the product
discounts = cash discounts for paying promptly, quantity discounts…
allowances = trade-in allowances for turning in old items when buying new ones…
segmented pricing
involves selling a product/service at two or more prices
- not based on differences in costs
- customer segmented pricing (eg. student discounts)
- product form pricing (eg. different versions of product)
- location based pricing (eg. international student fees)
- time based pricing
requirements for segmented pricing to be effective (4)
market must be segmental
segments must show different degrees of demand
costs of segmenting cannot exceed the extra revenue
must be legal
psychological pricing
price says something about the product
- people assume higher price means higher quality
reference prices = prices that customers carry in their mind and refer to when looking at a product
promotional pricing
temporarily pricing products below price and sometimes even below cost => increase short-run sales
- discounts
- special events
- limited time offers
- cash rebates
- low interest financing
adverse effects of promotional pricing
bargain wars
consumers are bombarded with deals - pricing confusion
used too often - creates deal prone customers
can erode a brand’s value
geographic pricing (5)
FOB pricing - buyer bears the shipping cost entirely
uniform delivered pricing - charges the same price plus freight to all customers, regardless of location
zone pricing - set up zones, customers within a given zone pay the same price
basing-point pricing - seller selects a city as a “basing point” and charges all customers the freight cost from that city to the customer
freight-absorption pricing – the seller absorbs all or part of the freight charges
dynamic pricing
continuously adjusting prices to meet the characteristics + needs of individual customers and situations
international pricing
sets prices based on:
- economic conditions
- competitive situations
- laws + regulations
- wholesaling + retailing systems
price changes
cuts occur due to:
- excess capacity
- increased market share
increases occur due to:
- cost inflation
- increased demand
- lack of supply
buyers reactions to price changes
price increase:
- product is ‘hot’
- company greed
price cuts:
- new model will be available
- models are not selling well
- quality issues
effective action responses to price changes
- reduce price to match competitors
- maintain price but raise perceived value
- improve quality + increase price
- launch a lower price ‘fighting brand’
pricing public policy
w/in channel levels:
- price fixing (w/out talking to competitors)
- predatory pricing (prohibits selling below costs to purposely hurt competitors)
across channel levels:
- retail price maintenance
- deceptive pricing
- price discrimination
