Chapter 11: Pricing Strategies: Additional considerations Flashcards
what are the 5 product mix pricing strategies
- Product-line pricing
- Optional-product pricing
- Captive-product pricing
- By-product pricing
- Product bundle pricing
What is product-line pricing
When a company sets different prices for product within the same line or category based on their features, quality or other differentiating factors
Must take into account the cost differences between the products in the line, the customer’s perception of their value, and competitors prices
What is Optional Product pricing
Offering a basic product at a standard price and giving customers the option the pay extra for additional features.
ex: Apple phone, and paying more on storage
What is Captive product pricing
Main product sold at low price (captive product), but higher prices for the accessories that are necessary to use the main product.
ex: razor + the razor heads.
What is Captive product pricing called for services
Two-part pricing.
What is by-product pricing
When a company makes money from selling by-products, secondary results of the main products.
Reduce the overall cost of making the main product and make more money
e.g: Making orange juice, and selling the peel to essential oil company
What is two part pricing
Business offers main service at a low price (fixed fee), but there are additional services (variable usage fee) are tied to the service
eg: Amusement park, entry free + additional services
What is Product bundle pricing
Where company sells multiple products together for a lower price than if you by each product separately.
Makes it more attractive for customers to buy more.
What is discount and allowance pricing
Reduce the prices to reward customer actions such as paying early
What are some types of pricing strategies in Discounts
- Cash: discount for early payment
- Quantity: Discounts for buying in large amounts
- Functional (trade) discounts: discount given to intermediaries (like wholesalers or retailers)
- Seasonal discount: Discounts for purchasing out of season items
What are some types of Allowances
- Trade in: This is a discount given when a customer trades in an old product (like an old phone or car) as part of the purchase of a new product.
- Promotional Allowance: Discount for promoting or advertising a product
What is segmented pricing
It’s when a company sells products at different prices even though the price differences are not based on cost differences.
What are the 3 subtypes of segmented pricing
- Customer-segment pricing
- Product-form pricing
- Location time-based pricing
What is customer-segment pricing and what is it a subtype of
It’s subtype of Segmented pricing.
= Customer segment pricing is when company’s charges different customers difference prices for the same product or service.
eg: student discounts, senior citizen discounts,
What is product-form pricing and what is it a subtype of
It’s part of segmented pricing
Where a company charges different prices for different versions of the product even though the costs are the same.
The reason for the diff prices is because diff customers may value two products differently.
What is Location & time pricing
Business set diff prices depending on the location or time the product or service is being sold.
Location: different location diff prices. The same house may cost diff depending on the place
Time: Price diff depending on timing of purchase, or time of day (ex movie ticket), during some seasons, weekends high prices, etc - It reflects changes in demand.
What are the conditions for segmented pricing, revenue management, or yield management to work effectively
- market should be segmented
- segments should show different degrees of demand
- Extra costs of segmenting should not exceed the extra revenue obtained
- must be legal (not discriminating against certain groups unfairly)
What is dynamic pricing
Is a pricing strategy where prices fluctuate based on real-time demand, market conditions, or other factors like time of day or customer behavior.
Give an example of how airlines use dynamic pricing
For instance, airlines use dynamic pricing to change ticket prices depending on how many seats are left or how close it is to the flight date.
What is psychological pricing
When the seller considers the psychological part of pricing & not only the economics.
Prices are set in a way that impacts consumers’ perceptions and behaviors, often by exploiting emotional triggers or cognitive biases.
eg $4.99 instead of $5
What are reference prices
These are the prices that consumer have in their minds & refer to when looking at a given product
- note the current prices - what similar products cost now
- remember past prices - what they’ve paid before for similar items
- assess the buying situation :the context of the purchase (like urgency or a special occasion) can make them more or less willing to pay a certain price.
What is promotional pricing
When prices are temporarily priced below the list price, and sometimes below the cost price to boost short-term sales
Give 6 examples of promotional pricing
- loss leaders: selling a product at a loss to attract customers who may then buy other products at full price.
- special event pricing: offering temporary discounts or sales during specific events (like holidays, anniversaries, etc.)
- cash discounts : offering a reduction in price if the customer pays by cash
- low-interest financing: company offers to let customers pay for a product over time, but they charge little or no interest.
- longer warrantees: if a product normally comes with a 1-year warranty, a company might offer a 3-year warranty for free. This makes the product feel safer to buy because you know you’re covered for a longer time.
- free maintenance: offering free maintenance (or other services) for a limited period adds value to the product
What are the risks of Promotional Pricing
- If it’s used too frequently & copied by competitors, it can create “deal-prone” customers who will wait for promotions and avoid buying at regular prices.
- Creates price wars
- May lower the brands image and value
What is Geographical pricing
Geographic pricing involves adjusting prices based on where the customer is located.
For example, it might cost more to ship a product to a distant location, so the price increases accordingly depending on the customer’s geographic location.
What is FoB origin policy (Free on Board)
= means the buyer assumes responsibility for the goods once they leave the seller’s location. The buyer covers all shipping costs from that point onward.
What is uniform-delivered pricing
Same price + freight to all customers regardless of their location
What is zone pricing
Customers in a given zone pay the same price.
What is Basing-point pricing
= Seller selects a city as the “basing point” and they charge all customers freight charges from that city to the customer
What is freight-absorbing pricing
Seller absorbs the freight charges
What does freight mean
Goods transported in bulk by truck, train, ship or aircraft
What is international pricing
When prices are set in a country based on country specific factors like :
- economic conditions
- competitive conditions
- laws & regulations
- infrastructure
- company marketing objective
What may price reductions be due to
- excess factory capacity
- falling marketing share
- desire to be a market share leader
What is a market share leader
= a company that has the highest market share in its industry or product category
What may price increase be due to
- Cost inflation
- Increased demand
- lack of supply
What’s buyer reaction to price increases
- product is ‘hot’
- company is greedy
What’s buyer reaction to price decreases
- new models will be available
- models are not selling well
- quality issues
What are indirect methods to increasing price
- Eliminate discounts
- Add higher-priced units to the product line
What are alternatives to increasing price
- reducing product size
- use less expensive material
- unbundling the product
