Pricing StrategiesChapter: 11

Lec: 8a

New Product Pricing Strategies

• Prices change as the product passes through its lifecycle

- Market- Skimming Pricing- Market Penetration Pricing

New Product Pricing Strategies

• Market-skimming pricing Setting a high price for a 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.

e.g. Sony- latest technologies e.g. Apple- Ipad e.g. Mobile phones

Apple’s Ipad

New Product Pricing Strategies

• Market-Penetration Pricing Setting a low price for a new product in order to attract

a large number of buyers and a large market share - highly price sensitive market - production cost must be low, as large volumes will be

produced e.g. Al-Falah offered credit card with low rates

Credit Card

Product Mix Pricing Strategies

• Product Line Pricing Setting the price steps between various products

in a product line based on cost differences between the products, customer evaluations of different features, and competitors’ prices

e.g. ‘Service’ different prices for different shoes e.g. small medium large size of bottles

Product Line Pricing

Product Mix Pricing Strategies

• Optional product pricing The pricing of optional or accessory products

along with the main product - Ipod – headphones - Refrigerator – ice makers 0

Optional Product Pricing

Product Mix Pricing Strategies• Captive- Product Pricing Setting a price for products that must be used along with a

main product. - How much to charge for the basic service and how much to

charge for the variable usage e.g. blades for razors (razors cheap, blades expensive) e.g. film for camera e.g. entry fee for park- (interesting rides extra ticket) e.g. Cinema ticket (food items extra from inside)

Captive- Product Pricing

Product Mix Pricing Strategies

• By- Product Pricing Setting a price for by-products in order to

make the main product’s price more competitive

Product Mix Pricing Strategies

• Product Bundle Pricing Combining several products and offering the

bundle at a reduced price. e.g. Fast-food restaurant deals vacation packages

Bundle pricing

Price Adjustment Strategies

• Discount and Allowance Pricing Discount A straight reduction in price on purchases during a

stated period of time. - cash discounts e.g. pepsi 5 Rs. - quantity discount (Thailand) - Functional Discount (out of season) e.g. airline tickets e.g. Generation end of summer sale

Price Adjustment Strategies

• Allowance Promotional money paid by manufacturers to

retailers in return for an agreement to feature the manufacturer’s products in some way

-trade in allowance: return an old item to get a new one at a cheaper price

- promotional allowances (PTC on sale of DunHill)