Chapter 11..marketing

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Pricing Products:Pricing Strategies

1111

Principles of Marketing


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Learning ObjectivesAfter studying this chapter, you should be able to:

1. Describe the major strategies for pricinginitiative and new products

2. Eplain how companies !nd a set of prices thatmaimi"e the pro!ts from the total product mi

#. Discuss how companies adjust their prices tota$e into account di%erent types of customers

and situations&. Discuss the $ey issues related to initiating and

responding to price changes

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Chapter Outline

1. Ne!Product Pricing Strategies

". Product Mi# Pricing Strategies

$. Price %djust&ent Strategies

'. Price Changes

(. Public Polic) and Pricing

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Ne!Product Pricing Strategies

Pricing Strategies

( )ar$et s$imming pricing( )ar$et penetration pricing

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Ne!Product Pricing StrategiesPricing Strategies

Market ski&&ing pricingis a strategy with high

initial prices to *s$im+ revenue layers from themar$et

( roduct -uality and image must support theprice

( uyers must want the product at the price( /osts of producing the product in small volume

should not cancel the advantage of higher prices( /ompetitors should not be able to enter the

mar$et easily

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Ne!Product Pricing StrategiesPricing Strategies

Market penetration pricingsets a low initialprice in order to penetrate the mar$et -uic$lyand deeply to attract a large number of buyers-uic$ly to gain mar$et share

( rice sensitive mar$et

( nverse relationship of production anddistribution cost to sales growth

( ow prices must $eep competition out of themar$et

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Product Mi# Pricing Strategies

Pricing Strategies

( roduct line pricing( 4ptional product pricing

( /aptive product pricing

( y'product pricing( roduct bundle pricing

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Product Mi# Pricing StrategiesPricing Strategies

Product line pricingta$es into accountthe cost di%erences between productsin the line, customer evaluation of theirfeatures, and competitors6 prices

Optional productpricingta$es intoaccount optional or accessory productsalong with the main product

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Price %djust&ent StrategiesPricing Strategies

+)!product pricingrefers to productswith little or no value produced as aresult of the main product. roducerswill see$ little or no pro!t other thanthe cost to cover storage and delivery.

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( Discount and allowance pricing(


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,iscount and alloance pricingreduces prices to reward customerresponses such as paying early orpromoting the product

( Discounts

( Allowances

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Price %djust&ent Strategies

Pricing Strategies

( Discounts( /ash discount for paying promptly

( >uantity discount for buying in largevolume

( 8unctional ?trade@ discount for selling,storing, distribution, and record $eeping

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( Allowances( rade in allowance for turning in an old

item when buying a new one

( romotional allowance to reward dealersfor participating in advertising or salessupport programs

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Seg&ented pricingis used when acompany sells a product at two or moreprices even though the di%erence is notbased on cost

( /ustomer segment pricing( roduct form segment pricing

( ocation pricing

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o be e%ective:( )ar$et must be segmentable

(


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Pricing Strategies

Custo&er seg&ent pricingis when di%erentcustomers pay di%erent prices for the sameproduct or service

Product for& seg&ent pricingis when di%erentversions of the product are priced di%erentlybut not according to di%erences in cost

Location pricingis when the product is sold indi%erent geographic areas and priceddi%erently in those areas, even thought thecost is the same

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Pricing Strategies

Robert Cross

-evenue &anage&ent charges the rightcustomer the right price at the righttime

ield &anage&ent balances price anddemand

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Pricing Strategies

Ps)chological pricingoccurs when sellersconsider the psychology of prices and notsimply the economics

( Ceference prices are prices that buyers carryin their minds and refer to when loo$ing at a

given product( oting current prices( Cemembering past prices( Assessing the buying situations

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Pro&otional pricingis when prices are temporarilypriced below list price or cost to increase demand

( oss leaders(


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Pricing Strategies

Loss leadersare products sold below cost toattract customers in the hope they will buyother items at normal mar$ups

Special event pricingis used to attractcustomers during certain seasons or periods

Cash rebatesare given to consumers who buyproducts within a speci!ed timeLo interest /nancing0 longer arrantees0

and free &aintenancelower the consumer6s*total price+

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Pricing Strategies

Cis$s of promotional pricing( sed too fre-uently, and copies by

competitors can create *deal'prone+

customers who will wait for promotionsand avoid buying at regular price

( /reates price wars

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Pricing Strategies

eographical pricingis used for customers indi%erent parts of the country or the world( 84 pricing( niformed delivery pricing( Fone pricing( asing point pricing( 8reight absorption pricing

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Pricing Strategies

2O+ 3free on board4 pricingmeans that thegoods are delivered to the carrier and the titleand responsibility passes to the customer

5nifor&ed deliver) pricingmeans thecompany charges the same price plus freightto all customers, regardless of location

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Pricing Strategies

6one pricingmeans that the company sets uptwo or more "ones where customers within agiven "one pay a single total price

+asing point pricingmeans that a seller

selects a given city as a *basing point+ andcharges all customers the freight costassociated from that city to the customerlocation regardless of the city from which thegoods are actually shipped

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Pricing Strategies

2reight absorption pricingmeans theseller absorbs all or part of the actualfreight charge as an incentive toattract business in competitivemar$ets

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Pricing Strategies

( Dynamic pricing( nternational pricing

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Pricing Strategies

,)na&ic pricingis when prices areadjusted continually to meet thecharacteristics and needs of theindividual customer and situations

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7nternational pricingis when prices are

set in a speci!c country based oncountry'speci!c factors

( Economic conditions( /ompetitive conditions( aws and regulations( nfrastructure( /ompany mar$eting objective

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Pricing Strategies


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Price Changes

Initiating Pricing Changes

( rice cuts( rice increases

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Price Changes

Initiating Pricing Changes

Price cutsis a reduction in price( Ecess capacity( ncrease mar$et share

Price increasesis an increase in sellingprice( /ost inGation( ncreased demand and lac$ of supply

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Price Changes

Responding to Price Changes

>uestions( Bhy did the competitor change the priceH

( s the price cut permanent or temporaryH

( Bhat is the e%ect on mar$et share andpro!tsH

( Bill competitors respondH

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Price Changes

Responding to Price Changes


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Public Polic) and Pricing

Pricing Within Channel Levels

Price /#ing:


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Pricing Across Channel Levels

-obinson Pat&an %ctprevents unfair pricediscrimination by ensuring that sellers o%erthe same price terms to customers at a givenlevel of trade

( rice discrimination is allowed:( f the seller can prove that costs di%er when selling

to di%erent retailers( f the seller manufactures di%erent -ualities of the

same product for di%erent retailers

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-etail 3resale4 price &aintenance is when amanufacturer re-uires a dealer to charge aspeci!c retail price for its products

,eceptive pricing occurs when a seller statesprices or price savings that misleadconsumers or are not actually available toconsumers

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,eceptive pricing occurs when a seller states pricesor price savings that mislead consumers or arenot actually available to consumers

(


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*he 8nd

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Chapter 11..marketing

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