pricing strategies new

7/30/2019 Pricing Strategies New

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Pricing strategies


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Setting prices to achieve the firms

objectives requires the selection ofspecific pricing strategy or a

combination of strategies.


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The 11 pricing

Strategies

shown into four categories


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Differential

pricing

Competitiv

e

pricing

Product-

line

pricing

Psychological

pricing

Second-market

discounting

Penetrationpricing

bundling Odd-evenpricing

Periodic

discounting

Price

signalling

Premium

pricing

Customary

pricing

Going rate

pricing

Partitioned

pricing

One-sided

claims


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Differential pricing


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Differential pricing involves sellingthesame productto different buyers

under avariety of prices.


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this is the practice of charging

different buyersdifferent pricesfor

thesame quantity & qualityof

products or services.


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Differential pricing

works because

1. the market is

heterogeneous


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2. or more simply

Differencesinreactions to price exist

among consumers or

consumer segments inthe market.


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The ability to engage in differential

pricing has been facilitated greatly by

the ever growing number of onlineauction sites.

Such as

priceline.com

shop bots that search the web for lowprices.


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Second marketdiscounting


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The most common from ofdifferential pricing second

market discounting


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Occurs when

different prices

are charged in

different market segments.


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Second-market discounting

is useful when:

1. the firm has excess capacity and

different market segments exist.


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Generic brands and some foreign

markets often provide opportunities forsecond market discounting.


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if a firm can sell its product cost-

effectively in aforeign market.it may be profitable to export at a price

even below local prices.the exporting firm must have excess

production capacity(so no new fixed

costs are required)

Example


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Second market discounting also occurs :

2. When the company sells a portion of

its output as generic brands at lower

prices to price sensitive segments


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Periodic discounting


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Periodic discountingenables a firm

to take advantage of the presence ofconsumer segments that differ in

price sensitivity.


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This approach includeprice skimming where an initial

high price is determined for new

products to skim the market.


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Competitive pricing


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Competitive pricing strategies

based on the firms position in

relation to its competition

include:


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penetration pricing

Limit pricing

Price signalling

Going-rate pricing.


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Penetration pricing


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Penetration pricing

Calls for alow initial pricetogenerate sales volume .

it is often used when the marketerwants to maximize sales growth or

market share.


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Penetration pricing

may be particularly

beneficial


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i. when there are a significant number ofprice-sensitive consumers in the

market

(demand is price-elastic)


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ii. Or the firm fears early entry of acompetitor if prices are set high &

margins appear attractive.


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Limit pricing

penetration pricing

Limit pricing

Price signalling

Going-rate pricing.


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Limit pricing

Another term forlow penetration pricing

also entails setting prices todiscouragenew competition.


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In situations inwhichcompetitive

reaction is unlikely

Firms may engage in

price skimmingdescribed earlier


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Price signalling


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Price signalling

Puts high

prices on low-

quality

products.

Unethicalbehaviour


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Firms can purchase it

successfully if severalcondition are satisfied:


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I. There must be a

segment of buyerswho believe firms

spend more to

provide higherquality

II. Information on the

level of qualityshould be hard for

buyers to obtain.


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Going-rate pricing


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Going-rate pricing

This approach is used whenproducts compete on the basis of

attributes or benefits other thanprice.


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Going-rate pricing has the additional

advantageof lessening thethreatof

aggressive price warswhich may beunprofitable to all competitors


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Product-line pricing


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Firms often offer a line of multiple

versions of the same product


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Marketers must be

sensitive to price changes

in the product line.


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A price change in one product candetract from sales of other products

in the line because they are oftensubstitutes for one another


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bundling


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Bundling

Bundling is marketing two or more

products or services in a singlepackage.

Th ti i f tl


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The practice is seen frequently

in the marketing of :

Hotel servicesRestaurant meals

Computer systemsStereo systems


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Definitions:

Bundling: sale of two or moreseparate products (&or service)

in one package

Such as opera tickets


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Price bundling:the sale of two more

separate products as a package at adiscount, without any integration of the

products

Variety pack of cereals


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Product bundlingtheintegration & sale of two or

more separate product at anyprice

Sound systems


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Pure bundling:a strategy in which a

firm sells only the bundle and not(all) the products separately

IBMs bundling of tabulatingmachines & cards


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Mixed bundlinga strategy in which a

firm sells both the bundle & all theproducts separately

Telecom bundles


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Premium pricing


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Premium pricingPremium pricing sets higher

(premium) prices on more deluxe

product versions.


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When a firms offers severalalternative models ,it often use a

premium pricing strategy


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Partitioned pricing

P titi d i i


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Partitioned pricing

Many firmsdivide the pricestheycharge into parts in lieu of charginga single price.


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These part prices are often termed

the base price and the surcharge.


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Example:

Sony telephone(from a mail catalogue)

$69.95Plus $12.95 for shipping &

handling.


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Psychological pricing


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Psychological pricing recognize

that buyer perceptions & beliefs

affect their price evaluations.


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Prestige or premium pricing & comparing

competitors price with a firm's lower saleprice deal with the psychological aspects of

consumer reactions to price


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ODD-even pricing

ODD-even pricing


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ODD-even pricing

Present prices at values justbelow an even amount ,a

common practice.


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Example: instead of pricing

content lenses at$200The price is set at$199.95

Customary pricing


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Customary pricing

Customary price beliefs representconsumers strongly held

expectations.


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pricing strategies that set customary

prices typically modify the qualityfeatures or services of a product

without adjusting the price.


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Example :new versions of & joyhand

washingdish detergents

Offered by P&G

Smaller bottles at the same price

The taller containers are

designed to look bigger and pour

faster adding up an effective 12%

price increase.


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One sided price claims

One-sided price claims


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One sided price claims

Concerns arise regarding the

implications of one sided price claimsin which superiority in price for one

attribute or offering is made.


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Geographic pricing

Geographic pricing


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g p p g

Companies with geographicallydispersed customers sometimes

adjust prices because of costsresulting from distance.

Geographic pricing


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g p p g

FOB origin pricing

Zone pricing

Freight absorption pricing


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FOB origin pricing


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One of the more commonly used

method isFOBorigin pricing.


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FOB stands for

Free on board


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Meaning:

the goods are placed on a carrier(truck-train-barge) and shipped to

the customer


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FOB pricing requires:

customers to pay the unit cost of thegoods plus ship pricing costs which

differ with location or market.


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Uniform delivered price

Uniform delivered price


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An opposite strategy is to charge the

same price & transportation cost to all

customers.

using a uniform delivered price,thecompany charges each customer an

average freight amount.


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Zone pricing

Zone pricing


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zone pricing is an approach

between FOB and uniform

delivered pricing.


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Customers within an area are charged a

common price .more distant zones orareas are charged higher freight

amounts.


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Is another form of geographicpricing.


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Here the seller absorbs fright costs

offers free or reduced costs ofdelivery to attract more business .

This practice occurs whencompetition among sellers is heavy.

pricing strategies new

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