Pricing Strategies PDF

Pricing Strategies Mehnaaz Samantha Kamal North South University October, 2024  New product pricing strategies Market Skimming Pricing: - Strategy with high initial prices, to “skim” revenue layers from the market. Conditions:  Product quality and image must support the...

Pricing Strategies Mehnaaz Samantha Kamal North South University October, 2024  New product pricing strategies Market Skimming Pricing: - Strategy with high initial prices, to “skim” revenue layers from the market. Conditions:  Product quality and image must support the price  Buyers must want the product at the price  Costs of producing the product in small volume shouldn't cancel the advantage of charging more.  Competitors shouldn’t be able to enter the market easily.  New product pricing strategies Market Penetration: - Sets a low initial price in order to penetrate the market quickly and deeply to attract a large number of buyers quickly to gain market share. Conditions:  Price sensitive market  production and distribution costs must decrease as sales volume increases.  Low prices must keep competition out of the market. Product Mix Pricing Strategies  Product Mix Pricing Strategies Product line pricing: - Takes into account the cost differences between products in line, customer evaluation of their features, and competitors’ prices. Product bundle pricing: - Combines several products at a reduced price.  Product Mix Pricing Strategies Optional product pricing -takes into account optional or accessory products along with the main product. Captive product pricing - Involves products that must be used along with the main product.  Product Mix Pricing Strategies Two- part pricing: - Involves breaking the price into fixed fee and variable usage fee. By- product pricing - Refers to products with little or no value produced as a result of the main product. Producers will seek little or no profit other than the cost to cover storage and delivery.  Price Adjustment Strategies Discount and allowance pricing: Reduces prices to reward customer responses such as paying early or promoting the product. Segmented pricing: Used when a company sells a product at two or more prices though the difference isn't based on cost.  Market must be segmental  Segments must show different degrees of demand  Watching the market can’t exceed the extra revenue obtained from the price difference  Must be legal  Price Adjustment Strategies Psychological pricing: Occurs when sellers consider the psychology of prices, not simply economies Reference prices: prices that buyers carry in their minds and refer to when looking at a given product. -Noting current prices -Remembering past prices -Assessing the buying situations  Price Adjustment Strategies Promotional pricing: when prices are temporarily priced below list price or cost to increase demand Discounts Special event pricing Cash rebates Loss leaders Low-interest financing, longer warrantees, and free maintenance lower the consumer’s “price.”  Price Adjustment Strategies Risks of promotional pricing:  If used too frequently and copied by competitors, it can create “deal prone” customers who will wait for promotions and avoid buying at regular price  Creates price wars. Price Adjustment Strategies  Price Adjustment Strategies Geographical Pricing FOB (free on board) pricing: The goods are delivered to the carriers, and the title and responsibility passes to the customer. Uniformed delivery pricing: The company charges the same price plus fright to all customers,  Price Adjustment Strategies Geographical Pricing Zone pricing: company sets up two or more zones where customers within a given zone pay a single total price Basing point pricing: a seller selects a given city as a “basing point” and charges all customers the freight cost associated from that city to the customer’s location, regardless of the city from which the goods are actually shipped Freight absorption pricing: the seller absorbs all or part of the actual freight charge as an incentive to attract business sin competitive markets.  Price Adjustment Strategies Dynamic pricing is when prices are adjusted continually to meet the characteristics and needs of the individual customer and situations Uber uses Dynamic Pricing: works through Algorithmic Pricing that determines what price to deliver based on different variables like the customer’s location, time of day, traffic patterns and even the user history with Uber. This data is collected, and the algorithm predicts the top price that the customers are most likely willing to pay (Forbes. 2019) Price Adjustment Strategies Price Changes Price Changes  Price Changes Competitor Reactions to Pricing Changes Competitor may think the company: – Is trying to grab a larger market share – Wants the whole industry to cut prices to increase total demand – Is doing poorly and trying to boost its sales  Price Changes Competitor Reactions to Pricing Changes  Pricing within channel levels Price fixing: Sellers must set prices without talking to competitors Predatory pricing: Selling below cost with the intention of punishing a competitor or gaining higher long-term profits by putting competitors out of business.  Pricing across channel levels Price Discrimination: must be prevented to make ensure that sellers offer the same price to customers at a given level of trade. however, discrimination can be allowed based on quantity and the quality of the product being sold. Retail (resale) price maintenance: a manufacturer can’t require a dealer to charge specific retail price for its products.  Pricing within channel levels Deceptive pricing: occurs when a seller states prices or price savings that mislead consumers - Scanner fraud failure of the seller to enter current or sale prices into computer system - Price confusion results when firms employ pricing methods that make it difficult for consumers to understand what price they are really paying.  Reference List Hudson, M. (2016). Explanation of loss leaders in retail. Available at: https://www.thebalance.com/loss-leaders-in-retail-28902 75. Accessed on : 8th July, 2017 Mutzabuagh, B. (2017). United Airlines moves to ‘dynamic pricing’ for frequent-flier awards. Available at: https://www.usatoday.com/story/travel/flights/todayinthe sky/2017/06/29/united-airlines-moves-dynamic-pricing-fr equent-flier-awards/438830001/ Pearson Education (2012), Chapter 11.