Pricing StrategiesPricing Strategies

After deciding whether to use a cost-oriented, demand-oriented, or a competition-oriented policy, your company will develop a pricing

strategy.

Pricing Strategies

• Price lining

• Bundle pricing

• Geographical pricing

• Psychological pricing

• Prestige pricing

• Everyday low pricing (ELDP)

• Promotional Pricing

Price Lining

• A store might charge $25, $35, and $50 for blouses to establish low, middle and high quality items.

• Price differences must be great enough to represent different qualities.

Product Mix Strategies

• Optional Products – Setting prices for accessories or options (example: cars)

• Captive Products – Set price for a product low, but make supplies needed to run that product, high (example: printers)

• By-product – Setting prices low for waste (example: Wood chips)

Bundle Pricing

• Offering several complementary products in a package that is sold at a single price that is lower than the cost of buying each item separately

• Advantage: Businesses can sell items that they may not have sold otherwise which increases sales and revenue

Geographical pricing

• Adjusting the price of an item because of the location of the customer

• Delivered price includes delivery charges• International pricing

– Economic conditions– Exchange rate– Shipping– Tariffs– Consumers’ income levels and lifestyles

Psychological Pricing

• Odd-even

• Prestige

• Multiple Unit

• Everyday low price

Odd-even

• Odd numbers convey a bargain– $19.99, $9.95, $.99

• Even numbers convey quality– $10, $50, $50.00

Prestige Pricing

• Set a higher than average price to suggest status and high quality

Multiple-Unit

• Pricing items in multiples suggests a bargain

• Like 3 for $1.00, instead of $.34 each

ELDP (everyday low price)

• Consistent low prices• Will not raise or lower price in the future• Not as deeply discounted as promotional

pricing• Advantages

– Creates stability– Reduced promotional expenses– Reduced losses due to discounting

Promotional Pricing

• Loss Leader

• Special event

• Rebates

• Coupons

Loss Leader

• Below cost prices

• Used to increase traffic

• Used to increase sales in other products

Special Event

• Items reduced in price for a short time based on a specific happening

• Manufacturers offer special promotions to retailers that are willing to advertise or promote a manufacturer’s products

Rebates

• Partial refunds from the manufacturer• Consumers need proof of purchase and

store receipt• What is their hope?• Manufacturers also offer rebates to retailers

and wholesalers– If you purchase a certain amount of goods prior

to running a promotion

Coupons

• Allow customers to take reductions at the time of purchase

• Found where?

• Hopefully, consumer will buy product just because they have a coupon.

Discounts and Allowances

• Cash discounts

• Quantity discounts

• Trade discounts

• Seasonal discounts

• Special allowances

Cash Discounts

• Offered to encourage quick payment

• 2/10, n/30

Quantity Discounts

• Place a large order, get a discount

• Non-cumulative offered per order (the more you buy, the larger the discount)

• Cumulative offered over a specified period of time (6 months) OR

• Buyers might sign a contract agreeing to buy a certain amount– Example: Advertisers who agree to use a certain amount

of newspaper columns might be charged cheaper rates

Seasonal Discounts

• Discount for buying out of season

• Manufacturers use to obtain orders

• Retailers use to reduce cost of storage

Allowances

• Go directly to the buyer

• Offered a price reduction to sell back an old model

Trade Discounts

• Not really discounts at all

• Prices quoted to retailers and wholesalers

• Percentage discount from list price or manufacturer’s suggested retail price

Set Prices

• Based on all the information in the first five steps of price setting, a company sets a price for its product.