Pricing Strategies

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• Pricing Strategies

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New Product Pricing Strategies

• Use Under These Conditions
• Products Quality and Image Must Support Its
  Higher Price.
• Costs Cant be so High that They Cancel the
  Advantage of Charging More.
• Competitors Shouldnt be Able to Enter Market
  Easily and Undercut the High Price.

• Market Skimming
• Setting a High Price for a New Product to Skim
  Maximum Revenues from the Target Market.
• Results in Fewer, But More Profitable Sales.

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New Product Pricing Strategies

• Use Under These Conditions
• Market Must be Highly Price-Sensitive so a Low
  Price Produces More Market Growth.
• Production/ Distribution Costs Must Fall as Sales
  Volume Increases.
• Must Keep Out Competition Maintain Its Low
  Price Position or Benefits May Only be Temporary.

• Market Penetration
• Setting a Low Price for a New Product in Order to
  Penetrate the Market Quickly and Deeply.
• Attract a Large Number of Buyers and Win a Larger
  Market Share.

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Product Mix-Pricing StrategiesProduct Line
Pricing

• Involves setting price steps between various
  products in a product line based on
• Cost differences between products,
• Customer evaluations of different features, and
  
• competitors prices.

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Product Mix- Pricing Strategies

• Optional-Product
• Pricing optional or accessory products sold with
  the main product. i.e camera bag.
• Captive-Product
• Pricing products that must be used with the main
  product. i.e. film.

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Product Mix- Pricing Strategies

• By-Product
• Pricing low-value by-products to get rid of them
  and make the main products price more
  competitive.
• i.e. sawdust, Zoo Doo

• Product-Bundling
• Combining several products and offering the
  bundle at a reduced price.
• i.e. theater season tickets.

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Discount and Allowance Pricing
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Segmented Pricing
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Psychological Pricing

• Considers the psychology of prices and not simply
  the economics.
• Customers use price less when they can judge
  quality of a product.
• Price becomes an important quality signal when
  customers cant judge quality price is used to
  say something about a product.

Value 22.00 Sale 14.99
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Promotional Pricing
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Price Sensitivity

• Consumer expectations
• Unique value
• Substitute awareness
• Difficult comparison
• Total expenditure
• Contribution to overall benefit
• Shared cost
• Sunk investment
• Price-quality associations

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Normal Price Model

• Monopolistic competition
• Aware of competitors
• Aware of substitutes
• Based on sample of competitive products and
  prices
• Normative model, lower and upper price limits

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Discussion Connections

• Many other industries have created deal-prone
  consumers through the heavy use of promotional
  pricing - fast foods, airlines, tires, furniture,
  and others.
• Pick a company in one of these industries and
  suggest ways that it might deal with this
  problem.
• How does the concept of value relate to
  promotional pricing? Does promotional pricing
  add to or detract from customer value?

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Other Price Adjustment Strategies
Geographical Pricing

• Adjusting Prices to Account
• for the Geographical Location
• of Customers.
• i.e. FOB-Origin, Uniform-
• Delivery, Zone Pricing, Basing
• Point, Freight-Absorption.
• Adjusting Prices for
• International Markets.
• Price Depends on Costs,
• Consumers, Economic
• Conditions, Competitive
• Situations Other Factors.

International Pricing
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Initiating Price Changes
Price Increases
Price Cuts


Why? Excess Capacity Falling Market
Share Dominate Market Through Lower Costs
Why? Cost Inflation Overdemand Company Cant
Supply All Customers Needs
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Reactions to Price Changes
Being Replaced by Newer Models
Price Cuts Are Seen by Buyers As
Current Models Are Not Selling Well
Company is in Financial Trouble
Quality Has Been Reduced
Price Comes Down Further
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Assessing/Responding to Competitors Price
Changes
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Public Policy Issues in Pricing
Manufacturer A Price-fixing Predatory
pricing Manufacturer B
Retailer 1 Price-fixing Predatory
Pricing Retailer 2
Retail price maintenance. Discriminatory Pricing
Deceptive Pricing
Consumers
Deceptive Pricing
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Public Policy Issues in Pricing
Pricing Within Channel Levels
Price Fixing
Predatory Pricing
Both Are Prohibited by Law
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Pricing Across Channel Levels
Deceptive Pricing Occurs When a Seller States
Prices or Prices Savings that Available To
Consumers
Price Discrimination Ensure Sellers Offers the
Same Price Terms to a Given Level Of Trade
Resale Price Maintenance Manufacturer Cant
Require Dealers to Charge a Specified
Retail Price for Its Product
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Review of Concept Connections

• Describe the major strategies for pricing
  imitative and new products.
• Explain how companies find a set of prices that
  maximizes the profits from the total product mix.
• Discuss how companies adjust their prices to take
  into account different types of customers and
  situations.
• Discuss the key issues related to initiating and
  responding to price changes.