Pricing StrategiesCh. 26 ME

Basic Pricing PoliciesSection 26.1

Cost-Oriented Pricing Marketers first calculate the costs of acquiring or making a

product and their expenses of doing business Mark-Up Pricing – resellers add a dollar amount to their

cost to arrive at a price Cost-Plus Pricing – all costs and expenses are calculated,

and then the desired profit is added to arrive at a price Demand-Oriented Pricing – determines what

consumers are willing to pay for given goods and services Pricing is dependent on the consumer’s perceived value of

the item

Basic Pricing Concepts

Competition-Oriented Pricing 1. Price above the competition2. Price below the competition3. Price in line with the competition (Going-Rate Pricing) There is no relationship between the cost and price or

between the demand and price Competitive-Bid Pricing – determines the price for a

product based on bids submitted by companies to a company or government agency

Establishing Base Price – all three pricing strategies can be used

Basic Pricing Concepts

One-Price Policy – is one in which all customers are charged the same pricesFlexible-Price Policy – is one in which customers pay different prices for the same type or amount of merchandise

Pricing Policies

Skimming Pricing – is a pricing policy that sets a very high price for a new productPenetration Pricing – the price for a new product is set very low

Non-Going Rate Strategies

Which Close – encourages a customer to make a decision between two itemsStanding-Room-Only Close – is used when a product is in short supply or when the price will be going up in the near futureDirect Close – is a method in which you ask for the saleService Close – is a closing in which you explain services that overcome obstacles or problems

Specialized Methods for Closing the Sale

Not every sale presentation will result in a saleGet FeedbackMaintain a Positive Attitude

Prepare for future sales callsSuccess in sales

Failure to Close the Sale

Strategies in the Pricing Process

1. Section 26.2

Product Mix Pricing Strategies – involve adjusting prices to maximize the profitability for a group of product rather than on just one item Price Lining – is a special pricing technique that sets a

limited number of prices for specific groups or lines of merchandise

Optional Product – sets prices for accessories or options sold with the main product

Captive Product – sets the price for one product low but compensates for that low price by pricing the supplies needed to operate that product high

Product Mix Strategies

By-Product – helps businesses get rid of excess materials used in making a product by using low prices

Bundle Pricing – a company offers several complimentary products in a package that is sold at a single price

Geographical Pricing – refers to price adjustments required because of the location of the customer for delivery of products

Product Mix Strategies

Segmented Pricing Strategy – uses two or more different prices for a product, even though there is no difference in the item’s cost Buyer Identification – recognizes a buyer’s sensitivity Product Design – create different prices for different

product styles that do not reflect the cost of making the item, but the demand for a given style

Purchase Location – involves pricing according to where a product is sold and/or the location of the good or service

Time of Purchase – prices charged according to demand based on time of day

Segmented Pricing Strategies

Psychological Pricing – are pricing techniques that help create an illusion for customers Odd-Even Pricing – involves setting prices that all end in

either odd or even numbers Odd numbers convey a bargain Even numbers convey a quality image

Prestige Pricing – sets higher-than-average prices to suggest status and higher quality to the consumer

Multiple-Line Pricing – suggests a bargain and helps to increase sales volume

Everyday Low Prices (EDLP) – are low prices set on a consistent basis with no intention of raising then or offering discounts in the future

Psychological Pricing Strategies

Promotional Pricing – is generally used in conjunction with sales promotions where prices are reduced for a short period of time Loss Leader Pricing – is used to increase store traffic by

offering very popular items of merchandise for sale at below-cost prices

Special-Event – items are reduced in price for a short period of time, based on specific happenings

Rebates and Coupons Rebates – are partial refunds provided by the manufacturer Coupons – allow customers to take reductions at the time of

purchase

Promotional Pricing

Cash Discounts – are offered to buyers to encourage them to pay their bills quickly

Quality Discounts – are offered to buyers for placing large orders Non-Cumulative – offered on one order Cumulative – offered on all orders over a specified period of

time Trade Discounts – the way manufacturers quote prices to

wholesalers and retailers Seasonal Discounts – are offered to buyers willing to buy

at a time outside the customary buying season Allowances – go to directly to the buyer after a trade-in

Discounts and Allowances

1. Establish Pricing Objectives2. Determine Costs3. Estimate Demand4. Study Competition5. Decide on a Pricing Strategy6. Set Prices

Steps in Determining Prices