Marketing mix pricing

Product mix pricing strategies

2

INTRODUCTION

• We need to set price when we have a new product, or when we enter a new market with an existing product

• How? – Need to decide what position you want your

product to be in.

Why pricing strategies

PRODUCT MIX AND PRICING

• Price-setting logic must be modified when, the product is part of a product mix.

• The firm searches for a set of prices that maximizes profits on the total mix.

• Pricing is difficult because the various products have demand and cost interrelationships and are subject to different degrees of competition

STRATEGIES

• Product Line Pricing– Setting price steps between product line items.

• When firms offer consumers a choice of price-quality levels – the “good-better-best” choice – a challenge for managers is how to set price differentials

EXAMPLE-TOYOTA

• Optional-Product Pricing– Pricing optional or accessory products sold with

the main product– EXAMPLE– RESTAURANTS

OPTIONAL PRODUCT PRICING

In Restaurants Customers can often order liquor in addition to the meal. Many restaurants price their liquor high and their food low. The food revenue covers costs, and the liquor produces the profit. This explains why servers often press hard to get customers to order drinks. Other restaurants price their liquor low and food high to draw in a drinking crowd.

• Captive-Product Pricing– Pricing products that must be used with the main

product– High margins are often set for supplies

• EXAMPLE• Cellular service operators

Captive-product pricing

A cellular service operator may give a cellular phone free if the person commits to buying two years of phone service.

Service:- two-part pricing strategy• Fixed fee plus a variable usage rateEXAMPLES• Amusement parks• Telecom operators

• The service firm faces a problem similar to captive -product pricing-namely, how much to charge for the basic service and how much for the variable usage

two-part pricing strategy

Telephone users pay a minimum monthly fee plus charges for calls beyond the minimum number.

Amusement parks charge an admission fee plus fees for rides over a certain minimum.

• By-Product Pricing– Pricing low-value by-products to get rid Of them or to

earn extra margin in profit.• If the by-products have value to a customer group,

they should be priced on their value. Any income earned on the by-products will make it easier for the company to charge a lower price on its main product if competition forces it to do so.

• EXAMPLE• In the timber industry

By-Product pricing

In the timber industry, for example, by-products include sawdust, small offcuts and bark.

• Product Bundle Pricing– Pricing bundles of products sold together

• When offering a mixed bundle, the seller normally charges less for the bundle than if the items were purchased separately.

• Good way to test market for a new product or to clear the stock.

• EXAMPLES• Resorts,Airfare deals etc.

Product Bundle Pricing

A theatre company will price a season subscription at less than the cost of buying all the performances separately or some combo offers in movies.

Because customers may not have planned to buy all the components, the savings on the price bundle must be substantial enough to induce them to buy the bundle.