Pricing strategy Flashcards
Product mix pricing strategies
Used when there is more than 1 product within this company.
What is price?
Price is the amount charged for a product or service, or the sum of the values that customers exchange for the benefits of having or using the product or service. Price produces revenue for the firm & determines their market share & profitability.
Name product mix pricing strategies
Product line pricing
Optional product pricing
Captive product pricing
Product bundle pricing
Product line pricing
Set prices across the entire product line.
Optional product pricing
Pricing optional or accessory products sold with the main product. Customers can do without these products.
Captive product pricing
Pricing products that must be used with the main product. E.g. Coffee machines + pods / Printer + Ink cartridges
Product bundle pricing
Pricing bundles of products sold together.
What is price adjustment strategies?
Used by companies to adjust basic prices to account for various customer differences and changing situations.
Discount & price allowance pricing
Reducing prices to reward customer responses ( E.g. early bird purchases, bulk purchases )
Discount
Straight reduction in price on purchases during stated period of time or of larger quantities.
Allowance
Promotional money paid by manufacturers to retailers in return for an agreement to feature manufacturer’s products.
Segmented pricing
Adjusting prices to allow for differences in customers, products or location.
Psychological pricing
Adjusting prices for psychological effect.
Use of numbers/ Different digits / Play of words
Reference pricing - To convey a sense of prestige / quality by pricing products higher. Positioned as upmarket.
Promotional pricing
Temporarily reducing prices to short-run sales during a stipulated period of time.
Geographical pricing
Adjusting prices to account for geographic location of customers. ( E.g. shipping cost )
Dynamic pricing
Adjusting prices continually to meet the characteristics & needs of individual customers and situations. Stock prices to reflect market demand and supply.
Use of eCommerce Price Manager tools to help.
Automated software solutions that track inventory levels & adjust prices using pre-set rules.
International pricing
Adjusting prices for internal markets
Factors for consideration :
Cost
Economic Conditions
Consumer perceptions & preferences
Different marketing objectives in different world markets.
Considerations in setting price
Price floor - No profits below this price.
For every additional unit that is sold, companies are going to incur losses.
Price ceiling - No demand above this price.
Major pricing strategies
Value-based pricing
Cost-based pricing
Competition-based pricing
Value-based pricing
Buyers’ perceptions of value rather than based on seller’s cost.
Cost-based pricing
Costs of making products plus fair rate of return.
Company’s costs (Advertising/manufacturing/distribution) & how much the company desires to make to compensate for the risks incurred.
Incorporate profit margin to compensate for risks.
Competition-based pricing
Competitors’ strategies, prices, costs & market offerings.
Internal factors affecting prices
Overall marketing strategy (positioning), objectives & mix
Organizational considerations
External factors affecting price
Nature of market & demand
- Pricing in different types of market
- Price-demand relationship
High elasticity - change in price will have a change in quantity demanded. Marketers look at adjusting prices.
Inelastic - price reduction will not have a significant increase in quantity demanded.
Economic conditions
Impact of pricing on other parties in the environment
What are the pricing strategies for new products? (No initial reference points)
Market-skimming pricing
Market penetration pricing
Market-skimming pricing
Price a product as high as possible, gradually lowering the price until it meets a market average. This helps companies to recover costs of development and generate high profit margins and also perceived good quality. However, companies will need to justify its high cost.
Market penetration pricing
Set low price for a new product to attract a large number of buyers and gain a large market share
As sales volume increases, the company enjoys economies of scale. This enables costs to fall further, allowing companies to cut their prices even further.
Market is price sensitive. Maintain cost competitiveness advantage.
