Pricing Strategies PDF

**[Pricing Strategies]** **MARKET SKIMMING PRICING** Setting a high price for new product to skim maximum revenues layer by layer from the segments willing to pay the high price; the company makes fewer but more profitable sales. [Three Conditions to Apply Skimming Pricing] 1\. The product\'s qu...

**[Pricing Strategies]** **MARKET SKIMMING PRICING** Setting a high price for new product to skim maximum revenues layer by layer from the segments willing to pay the high price; the company makes fewer but more profitable sales. [Three Conditions to Apply Skimming Pricing] 1\. The product\'s quality and image must support its higher price and enough buyers must want the product at that price. 2\. The cost of producing a smaller volume cannot be so high that they cancel the advantage of charging more. 3\. Competitors should not be ale to enter the market easily and undercut the high price. **Penetration pricing strategy** Setting a low price for a new product in order to attract a large number of buyers and a large market share. [Three Conditions to Apply Penetration Pricing] 1\. The market must be highly price sensitive. 2\. Production and distribution costs must fall as sales volume increases. 3\. The low price must help keep out the competition. **[Product Mix Strategies]** **Product Line Pricing** Setting the price steps between various products in a product line based on cost differences between the products, customer evaluation of different features, and competitors\' prices. **Optional-product Pricing** The pricing of optional or accessories products along with a main product. **Captive-product Pricing** Setting a price for products that must be used along with a main product. **By-product Pricing** Setting a price for by-products in order to make the main product\'s price more competitive. **Product Bundle** Pricing Combining several products and offering the bundle at a reduced price. **[Price Adjustment Strategies]** **Discount and Allowance Pricing** **Discount:** A straight reduction in price on purchases during a stated period of time. **Allowance:** Promotional money paid by manufacturer to retailers in return for an agreement to features the manufacturer\'s products in some way. - Trade-in Allowance - Promotional Allowance **Segmented Pricing** Selling a product or service at two or more prices, where the difference in prices is not based on differences in cost. - Customer segment pricing - Product-form pricing - Location pricing - Time pricing **Psychological Pricing** A pricing approach that considers the psychology of prices and not simply the economics, the price is used to say something about the product. Another aspect of this pricing is reference prices - prices that buyers carry in their minds and refer to when they look at a given product. Pricing signal (sale, reduced, now 2 for only\..., loss-leader pricing) Even small differences in price can signal product differences. (Odd-pricing) **Promotional Pricing** Temporarily pricing products below the list price and sometimes even below cost, to increase short-run sales, to create buying excitement and urgency. - Special event pricing - Low-interest financing - Longer warranties - Free maintenance **[Adverse effect:]** - Create deal-prone customer. - Erode a brand\'s value in the eye\'s of customers. - Marketers addicted to it rather using long-term strategies to develop brands. **Geographical Pricing** Setting prices for customers located indifferent parts of the country or world. **1. FOB-Origin Pricing** A geographical pricing strategy in which goods are placed free on board a carrier; the customer pays the freight from the factory to the destination. **2. Uniform-delivered Pricing** A geographical pricing strategy in which the company charges the same price plus freight to all customers, regardless of their locations. **3. Zone Pricing** A geographical pricing strategy in which the company sets up two or more zones. All customers within a zone pay the same total price; the more distant the zone, the high he price. **4. Basing-point Pricing** A geographical pricing strategy in which the seller designate some city as a basing point and charges all customers the freight cost from that city to the customer. **5. Freight-absorption Pricing** A geographical pricing strategy in which the seller absorbs all or part of the freight charges in order to get the desired business. **Dynamic Pricing** Adjusting price continually to meet the characteristics and needs of individual customers and situations. **International Pricing** - In some cases, companies set uniform world-wide price. - Most companies adjust their prices to reflect local market conditions and cost considerations. **Price Changes (Initiating Price Changes)** **Initiating Price Cuts** Reasons for price cuts: - Excess capacity - Falling demand - To use \'low-price\' as a promotion. **Initiating Price Increases** Reasons to price increase: - To improve profit. - Cost inflation. - Over demand When increase price, company must avoid being perceived as price gouger. (sense of fairness) The company should consider ways to meet higher costs or demand without raising prices. **Buyer Reaction to Price Changes** **Competitor Reaction to Price Changes**