Pricing Strategies for Businesses

Pricing Strategies

• The presentation covers various pricing strategies for businesses.
• Different types of pricing strategies discussed include new product pricing, product mix pricing, and price adjustment strategies.

New-Product Pricing Strategies

• Market-skimming pricing: A strategy using high initial prices to capture revenue from the market.
• Market-penetration pricing: A strategy using a low initial price to quickly penetrate the market to gain significant market share.
  • Conditions for market-skimming: Product quality and positioning must support the high initial price, buyers must want the product at that price, the cost of producing the product in small initial volumes shouldn't cancel out the advantage of charging more initially, and competitors shouldn't easily enter the market.
  • Conditions for market-penetration: The price-sensitive market must have decreasing production and distribution costs as sales volume increases, and competitive prices must keep other competitors out of the market.

Product Mix Pricing Strategies

• Product line pricing: Taking cost differences and customer evaluations of their features into account to determine prices within a product line.
• Optional product pricing: Considering optional or accessory products alongside the main product.
• Captive product pricing: Involves products which need to be in use alongside the main product for them to function.
• Product bundle pricing: Combining several products at a discounted price bundle.
• By-product pricing: Pricing products that are created as a result or byproduct of another product when that by-product has little to no value attached to it; the intent is to cover storage/delivery costs.
• Two-part pricing: Price is broken down into a fixed fee and a usage fee component.

Price-Adjustment Strategies

• Discount and allowance pricing: Reducing prices to reward customer responses (e.g., early payment, promotions).
• Segmented pricing: Setting different prices for different segments of customers without cost differentiators, while considering potential levels of demand.
• Psychological pricing: Pricing decisions take into account consumers' psychological perceptions of prices, not simply economical ones (e.g., $9.99 is often perceived lower than $10.00).
• Promotional pricing: Temporarily setting prices below list price to boost demand or clear excess inventory.
• Geographic pricing: Pricing based on location differences (e.g., FOB, zone pricing, basing-point pricing, freight absorption pricing).
• Dynamic pricing: Prices are adjusted frequently based on individual customer's attributes, needs, and circumstances. (Uber example provided)
• International pricing: Prices in a specific country are based on specific country factors (e.g., economic conditions, laws, regulations, infrastructure, and company marketing objectives).

Price Changes

• Price cuts: Occurring due to excess capacity or market growth tactics.
• Price increases: Occurring due to cost inflation, increased demand, or lack of supply.
• Buyer reactions to price changes: Include how customers react when product price goes up or down (incl. product being "hot", company greed, new models becoming available, models not selling well, or quality issues).
• Competitor reactions to price changes: Including competitors' thoughts on company price change motives (e.g., grabbing larger market share, aiming to boost total industry demand, or being in poor financial health); potential competitor counter-actions (e.g., matching price cut or raising perceived quality).

Pricing within channel levels

• Price fixing: Sellers must set prices without discussing them with competitors.
• Predatory pricing: Selling below cost to punish competitors or gain lasting profits by eliminating them.
• Price discrimination: Must prevent sellers offering different prices to the same customer segment.
• Retail (resale) price maintenance: A manufacturer can't require a dealer to charge a certain price for its products.
• Deceptive pricing: Misleading consumers by incorrectly describing prices or price savings.