Pricing Strategies and Types Flashcards
What are the pricing strategies in the INTRODUCTORY stage of the PLC?
Price Skimming, Penetration Pricing, Give-Away
Penetration Pricing Strategy
using a low price with the goal being to get as many consumers as possible to try the product
- ex. new food products, health and beauty supplies, and beauty supplies
Price Skimming Strategy
setting a high initial price for a product, to more quickly recoup the investment related to its development and marketing
- ex. top, or high-end, of the market
Give-Away (Free Use)
Free trial period
- ex. offering a basic app for free to new customers (limited function but enough to induce customers to sign up for them)
What is the pricing strategy in the LATER stage of the PLC?
Cost-Plus Pricing
Cost-Plus Pricing
Determining the price based on cost and adding the profit margin on top of the cost
- ensures that the product costs are covered and the company earns a certain amount of profit
Markup: adding to the cost of a product (a form of cost-plus pricing)
Mark down: when products go on sale, but still make a profit
What Pricing Strategies Reduce Prices?
Loss Leader Pricing, Everyday Low Pricing, Promotional Pricing, Price Bundling
Loss Leader Pricing
Pricing one or more highly popular shopping items at a loss to attract customers to the store
ex. Walmart
Everyday Low Pricing
The promise that consumers will always have low prices without having to wait for sales
ex. Walmart
Promotional Pricing
Short-term tactic price reduction designed to get people into a store or to purchase more of a product
ex. Black Friday, Back to School Sales
Price Bundling
Different offerings are sold together at a price that’s typically lower than the total price
ex. McDonald’s Extra Value Meal, Suitcase Bundle
What Pricing Strategies psychologically lowers prices?
Odd-even Pricing/Psychological Appeal, Payment Pricing, Two-Part Pricing
Odd-even Pricing/Psychological Appeal
The company prices a product a few cents or a few dollars below the next dollar amount
ex. $19.99
Payment Pricing
Allowing customers to pay for products in installments
ex. paying in 4 equal interest-free payments
Two-Part Pricing
Pricing one price level to access a portion of the offering with the option of paying a different price level if more access is needed
ex.
Tier 1 (Free): access to basic components
Tier 2 (Premium): access to advanced components
What Pricing Strategies is Price Customization?
Price Differentiation, Dynamic Pricing
Price Differentiation
Price differentiating or charging different customers different prices for the same product
ex. Senior Discount or Student Discount
Dynamic Pricing
Automated adjustments in prices based on the customer, their browser, their online search patterns, and their past purchase behaviour
ex. Amazon reprices millions of items as frequently as every few minutes based on the market and you (the customer)
What Pricing Strategy limits pricing alternatives?
Price Lining/Levels, Demand Backward Pricing
Price Lining/Levels
Providing limited price levels for options in the same product category to make it easier to make a choice
ex. iPhone 13 Pro Max, iPhone 12 Pro, iPhone 13, iPhone 13 Mini
Demand Backward Pricing
They start with the price demanded by consumers and create offerings at that price
ex. time-limited products like holiday products (Halloween costumes)
What Pricing Strategy Manages Repeated Purchases?
Subscription-Based Pricing, Captive Pricing
Subscription-based Pricing
Weekly, Monthly, or Annual fee to access an offering
ex. Netflix, Disney Plus, Dollar Shave Club
Captive Pricing
Consumers must buy a given product because they are at a certain event or location, or they need a particular product because no substitutes will work
ex. Printer (makes 0% profit) and Ink Cartridges (puts a 300% mark up which customers will repeatedly buy)
Additional Pricing Tactics
Prestige Pricing, Sealed big Pricing, Going-Rate Pricing
Prestige Pricing
when a higher price is utilized to give an offering a high-quality image
Sealed bid Pricing
Submitting monetary bids in sealed envelopes directly to the seller (e.g., B2B)
Going-Rate Pricing
Buyers pay the same price regardless of where they buy the product or from whom
ex. wheat, gold, silver, government-regulated markets
Price Lining
categorizes where there is little to differentiate two stores carrying the same product, but one store prices it higher because of the store’s perceived higher image but there’s little to differentiate between these products in terms of function
Bids (on Online Auction Sites)
Gives customers a change to bid and negotiate prices with sellers until an acceptable price is agreed upon
ex. eBay
