Chapter 11. Pricing Strategies Flashcards
What are the New Product pricing strategies?
- Market Skimming
- Market Penetration Pricing
Market Skimming
Setting a high price for a new product to maximize profit layer by layer from the segments willing to pay the higher price. Fewer but more profitable sales.
Market Penetration Pricing
Setting a low price for a new product to attract a large number of buyers and a large market share.
What are the Product Mix pricing strategies?
- Product-Line pricing
- Optional-Product pricing
- Captive-Product pricing
- By-Product pricing
- Product Bundle pricing
Product-Line pricing
Setting prices across an entire product line based on cost differences between the products, customer evaluations of different features, and competitors’ prices.
Optional-Product pricing
The pricing of optional or accessory products along with the main product.
Captive-Product pricing
Setting a price for products that must be used along with a main product (ex. Blades for a razor).
By-Product pricing
Setting a price for by-products to help offset the costs of disposing of them. Helps make the main product’s price more competitive (ex. Cheese makers and leftover brine).
Product Bundle Pricing
Combining several products and offering the bundle at a reduced price.
What are the Price Adjustment strategies?
- Discount
- Segmented Pricing
- Psychological Pricing
- Promotional Pricing
- Geographical Pricing
- Dynamic Pricing
- International Pricing
Discount
a straight reduction in prices during a stated period of time or of larger quantities.
What are Allowances in relation to Discount strategies?
promotional money paid by manufacturers to retailer for an agreement to feature the manufacturer’s product.
Segmented Pricing
Selling a product or service at different prices where the difference in price is not based on difference in costs (ex. customer-segmented)
Psychological Pricing
Pricing that considers the psychology of prices. The price is used to signal something about the product (ex. Pricing in the 9’s)
Describe Reference Prices in relation to Psychological Pricing
Prices that buyers carry in their mind and refer to when they look at a given product (ex. Gas)
Promotional Pricing
Temporarily reducing prices to spur short-run sales.
Geographical Pricing
Adjusting prices to account for geographic location of customers.
Dynamic Pricing
Continually adjusting prices to meet the characteristics and needs of individual consumers (ex. Kohls electronic price tags)
International Pricing
Adjusting prices for international prices.
How could a company respond to price changes initiated by a competitor?
- Sit tight
- Reduce its own price
- Raise perceived quality
- Improve quality and raise price
- Launch a fighter brand
What are the competition-orientated approaches to Pricing?
- Customary pricing
- Pricing at-, below-, or above-market
- Loss-leader pricing
What are legal and ethical concerns in Pricing?
- Price Fixing (Horizontal & Vertical)
- Predatory Pricing (Low pricing to put competitors out of business)
- Deceptive Pricing (ex. Bait and Switch)
Company should cut prices ONLY if
- Cost or technology advantage
- Primary demand for product class will increase
- Price is confined to specific products or services
