Pricing Strategies
New Product Pricing Strategies
• Market Skimming Pricing
• Market Penetration Pricing
Market Skimming
• High initial prices to skim revenues from market
• Works only when
– Product’s image and quality matches the high price
– Costs of producing small number cannot be too high
– Competitors should not be able to come in easily to cut high prices
Market Penetration
• Set the initial price to be low, so as to penetrate the market
• Attract large number of customers and gain market share
• Works only when
– Market is highly price sensitive
– Must have economies of scale
– The low price must be able to keep of competition
Product Mix Pricing Strategies
Product Mix Pricing Strategies
• Product Line Pricing:
• Seller’s tasks is to establish perceived quality differences that support the price differences
• Optional Product Pricing:
• Pricing is a sticky problem
• Decide which to offer with base price and which to provide as option
• Discuss example
Product Mix Pricing Strategies
• Captive Product pricing
• Producers often have the base item marked low but the supplies marked high
• Discuss examples
• The essence is to capture the customer
• For service industries:
• Pay fixed fee
• Variable usage rate
Product Mix Pricing Strategies
• By-Product Pricing: applicable when
• By products have no value
• Are expensive to store and dispose
• Companies should settle for a price that covers the cost
• Discuss example
• Product Bundle Pricing
• Bundle several products together
• Discuss examples
Price-Adjustment Strategies
Discount & Allowance Pricing
• Cash Discount: on time
• Quantity Discount: on quantity
• Functional Discount: on performance
• Seasonal Discount: to balance seasonal demands
Segmented Pricing
Difference in price is not because of difference in cost
• Customer Segment Pricing
• Product Form Pricing
• Location Pricing
• Time Pricing
• The market must be segmentable
• Segments must have different degrees of demand
• The prices should reflect the customer’s perceived value
Psychological Pricing
• Many consumers use price to judge quality
• When consumers cannot judge due to lack of information or skill, price becomes an indicator of quality
• Discuss Smirnoff’s example
• Reference Prices
– Product placement and visibility
– Sale signs
– Prices ending in 99
– Signpost Pricing
– Price Matching guarantees (Read Real Marketing 11.1)
Promotional Pricing
• Companies temporarily price their products below list price to create urgency and excitement
– Loss leaders
– Special Event Pricing
– Cash Rebates
If used too frequently, the brand loses the novelty and also, no one would buy them at regular price anymore.
However, since it’s the easiest thing to do, to increase short run sales, it is quite addictive
Geographical Pricing
• Uniform Delivered Pricing: Easier to manage and advertise nationally
• Zone Pricing: Rather than individual city or town, pricing is done on a zone basis
• Basing-Point Pricing: use another city as base
• Freight Absorption Pricing: Absorb all or part of the cost to penetrate the market
Dynamic Pricing
• Adjust prices continuously to meet the characteristics and needs of customers
• Particularly effective for internet marketing
International Pricing
• Uniform worldwide price
• Most companies have to change their pricing
• PEST, infrastructure, laws
• Consumer perceptions
• Product life cycle
• Costs-resulting in price escalation
Price Changes
• Initiating Price cuts
– Excess capacity
– Falling demand
– Dominate market through lower costs
• Initiating Price Increases
– Cost inflation
– Overdemand
– Must be supported by communication
– Use low visibility price moves
– However, whenever possible, company should look for other alternatives without raising prices
Price Changes
• Buyer Reactions
• Competitor Reactions
– When few are present
– Product is uniform
– Buyers are well informed about products
– Its more an educated guesswork
Back to Top