Product / Price / Promotion / Place

Marketing...

Pricing Strategies

Low High

Low

High

EconomyPricing

Market Penetration

Market Skimming

PremiumPricing

Price

Quality

Pricing Strategies: Market Skimming

Applies to new, distinctive products, early in the Product Life Cycle

– Common when there is little competition– Set the price high and reach BEP quickly– Sometimes used to limit demand if you cannot produce

enough to meet heavy demand– Initial high price attracts wealthy trendsetters– Most new consumer electronic products practice this pricing

technique

The iPod was priced $259 in 2004.

The PS3 was priced $599 in 2007.

Pricing Strategies: Market Skimming

Pricing Strategies: Captive Product Pricing

Products that require a “refill” component can command a captive price. Examples are cartridges for razors, water filters and printers…

Pricing Strategies: Common Pricing Mistakes…

Pricing Strategies: Economy Pricing

Pricing Strategies: Premium Pricing

Pricing Adjustment Strategies

• Discount / allowance • Segmented• Psychological• Promotional• Competitive

• Types of discounts– Cash discount– Quantity discount– Seasonal discount

• Allowances– Trade-in allowances– Promotional allowances

StrategiesStrategies

Pricing Adjustment Strategies: Discount / allowance

Quantity discount

Cash discount

Seasonal Discounts

Trade-in allowances

Pricing Adjustment Strategies: Discount / allowance

• Discount / allowance • Segmented• Psychological• Promotional• Competitive

• Types of segmented pricing strategies:– Product-line pricing– Location pricing– Time pricing

• Also called revenue or yield management

• Certain conditions must exist for segmented pricing to be effective

StrategiesStrategies

Pricing Adjustment Strategies

Pricing a Product-Line

Pricing Adjustment Strategies: Segmented

Pricing Adjustment Strategies: Segmented

Segmented Pricing Strategies: Time Pricing

Pricing Adjustment Strategies: Segmented

• Discount / allowance • Segmented• Psychological• Promotional• Competitive

• The price is used to say something about the product.– Price-quality relationship– Reference prices– Differences as small as five cents

can be important– Numeric digits may have

symbolic and visual qualities that psychologically influence the buyer

StrategiesStrategies

Pricing Adjustment Strategies

Psychological Pricing

Psychological pricing occurs when sellers consider the psychological factors of price. The price tag on a pair of moccasin UGG slippers is $100. The price on a pair that looks almost identical, sold at L.L. Bean is half that at $49.95. The difference in price is not due to a drastic difference in quality, both are made from sheepskin and both have indoor/outdoor soles, the difference in price is an example of psychological pricing.

The UGG Slipper: $100

The L.L. Bean Slipper: $49.95

Pricing Adjustment Strategies: Psychological

Pricing Adjustment Strategies: Psychological

• Temporarily pricing products below the list price or even below cost– Contracts, Special-event

pricing– Cash rebates– Low-interest financing,

warranties– Loss leaders

StrategiesStrategies

• Discount / allowance • Segmented• Psychological• Promotional• Competitive

Pricing Adjustment Strategies

Pricing Adjustment Strategies: Promotional

Pricing Adjustment Strategies: Promotional

Pricing Adjustment Strategies: Promotional

Loss LeaderGood or service advertised and sold at below cost price. Its purpose is to bring customers in the store (usually a supermarket) on the assumption that, once inside the store, customers will be stimulated to buy full priced items as well.

Challenges:

–Easily copied by competitors–Creates deal-prone consumers–Erode brand value–Industry Price Wars

Pricing Adjustment Strategies: Promotional

• most popular strategy• products in a specific category

match/follow competitors closely• companies compete using something

other than price: ads, promos, distribution, product features

• manufacturer with largest market share, first product, or longest on market sets benchmark price

• others compare their product, set their price in relation (remember costs vs benefits = value)

StrategiesStrategies

• Discount / allowance • Segmented• Psychological• Promotional• Competitive

Pricing Adjustment Strategies

Competitive Pricing- some retailers have a strict competitive price policy and will meet or beat others’ prices- some stores hire competitive shoppers who research the competition to ensure best price

Pricing Adjustment Strategies

Pricing Adjustment Strategies: Competitive

No Loss Leader => Every Day Low (or Competitive) Pricing

Pie Chart humour…1st Qtr2nd Qtr3rd Qtr4th Qtr