Pricing Strategy II Flashcards
what are the new product pricing strategies
- Market Skimming Pricing
- Market Penetration Pricing
what is market skimming
Market skimming is a product pricing strategy by which a firm charges the highest initial price that customers will pay. Company makes fewer but more profitable sales.
As the demand of the first customers is satisfied, the firm
lowers the price to attract another, more price-sensitive
segment.
the ______ gets its name from skimming successive layers of “cream,”
skimming strategy
when shoudl market skimming be used
➢Product’s quality and image must support its higher price.
➢Costs of low volume cannot be so high they cancel the advantage of charging more.
➢Competitors should not be able to enter market easily and undercut the price.
what is market penetration pricing
Technique in which a company
offers a new product at a price significantly lower than its
competitors.
Penetration pricing gives an edge to the company because
many customers are attracted on the basis of price, or value for money.
Once it has gained a large market share and customer base, the company begins to increase the price of the product
Companies sometimes use this technique when offering a new
product, to encourage customers to try the product.
when should market penetration be used
➢Highly sensitive target market
➢Production cost of product must fall, as sales volume
increases.
➢Need to keep competition ou
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
▪ Involves setting price steps between various
products in a product line based on:
▪ Cost differences between products
▪ Customer evaluations of different features
▪ Competitors’ prices
what is optional product pricing
▪ Pricing optional or accessory products sold with the main product
what is Captive-Product Pricing
Pricing products that must be used with the main product
Eg. replacement cartridges for Gillette razors
what is By-Product Pricing
▪ When the process of making one thing results in a second
product as well, that second thing is called a byproduct.
▪ Eg1. Sawdust is a byproduct of lumber (planks of wood).
▪ Eg2. Feathers are byproduct
of poultry processing.
▪ So, these byproducts with little or no value and biz still
have to dispose or find storage.
▪ So to get rid, they sell them off Low Price so that biz can
earn a bit of additional revenue from the same infrastructure or setup.
▪ Biz will seek little or no profit other than the cost to cover storage and delivery
what is product bundle pricing
▪ Combining several products and offering the bundle at a reduced price.
what are the 4 price adjustment strategies
- Discount and Allowance Pricing
- Segmented Pricing
- Psychological Pricing
- Promotional Pricing
what is discounts and allowance pricing
Discount and allowance pricing reduces prices to reward customer responses such as paying early or promoting the product.
▪ Discounts
➢ Cash (price reduction)
➢ Quantity (price reduction for large volume)
➢ Trade / Functional (offer to trade members to perform certain functions
– e.g increase short term sales)
➢ Seasonal (e.g. Winter sale - offered to buyers who buy merchandise from previous season)
▪ Allowances
➢ Trade-in (reduction of price, when an old product is returned)
➢ Promotional (reward dealers for participating in advertising and sales support programs)
what is segmented pricing
▪ Selling a product or service at two or more prices, where the difference in prices is not based on differences in costs.
what are the 4 types of segmented pricing
customer segment
product form
location pricing
timing pricing
what is customer segment in segmented pricing
- different customer pay different prices – eg student vs adult movie tickets
what is product form in segmented pricing
- different versions of the SAME product priced
differently - EG CDs packaging (some like beautiful
packaging)
what is location pricing
▪ different locations and priced differently
▪ concert tickets CIRCLE seat vs STALL seat
what is timing pricing
▪ price by the season, the month or
▪ EG Movies on weekday & weekEnd and Night and Day.
what is psychological pricing
▪ Considers the psychology of prices and not simply the
economics. (e.g. $1.99, $199, $888)
▪ Consumers usually perceive higher-priced products as having higher quality.
▪ Auspicious pricing – the use of 8.
what is promotional pricing
When prices are temporarily
reduced to stimulate or increase
demand.
examples of promotional pricing
➢ Loss Leaders - drop price on
well-known brands to attract traffic)
➢ Special evening pricing - Back to School / Post-Christmas or Boxing Day Sale
➢ Cash rebates
➢ Low/Zero interest financing (0% interest, installment plan)
what are the reason for initiaing price cuts
▪ Reasons for price cuts:
– Excess capacity
– Falling demand
– Attempt to dominate the market
