PRICING STRATEGIES
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Agenda
Pricing Strategies
Price Adjustment Strategies
Money Charged for a Product or Service
Generates Revenue
Easy to Change
Price
Low High
Low
High
Economy
Pricing
Market
Penetration
Market
Skimming
Premium
Pricing
Price
Quality
Pricing Strategies
Applies to new, distinctive products, early in the PLC
Market Skimming
• Most consumer electronic products
• The iPod was priced $259 in 2004.
Market Skimming
Applies to large markets with elastic demand,
economies of scale, intense competition
Penetration Pricing
Reducing Price Too Soon
Pricing Based on Cost instead of Customer Value
Two Pricing Mistakes
• Discount / allowance
• Segmented
• Psychological
• Promotional
• International
• Types of discounts
– Cash discount
– Quantity discount
– Seasonal discount
• Allowances
– Trade-in allowances
– Promotional allowances
Strategies
Price Adjustment Strategies
Total Price = Retail Price + Shipping Price
Two-part Tariffs
• Discount / allowance
• Segmented
• Psychological
• Promotional
• International
• 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
Strategies
Price Adjustment Strategies
High
Quality
Low
QualityToyota Corolla
Altis
Toyota Camry
W1
Product Lines in India
– Market must be “Segmentable”
– Segments must show different demand
– Pricing must be legal
– Costs of segmentation cannot exceed revenues
earned
– Segmented pricing must reflect real differences
in customers’ perceived value
Segmented Pricing Effectiveness
• Discount / allowance
• Segmented
• Psychological
• Promotional
• International
• 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
Strategies
Price Adjustment Strategies
This ad for a luxury
priced car attempts to
show that Mercedes
owners form important
relationships with their
cars.
Psychological Pricing
• Discount / allowance
• Segmented
• Psychological
• Promotional
• International
• Temporarily pricing products below the list price or even below cost– Contracts, Special-Event
pricing
– Cash rebates
– Low-interest financing, warranties
– Loss leaders
Strategies
Price Adjustment Strategies
Sold at (or below) cost
Frequently purchased product
Inconveniently Located
Perishable
Loss Leader
• Easily copied by competitors
• Creates deal-prone consumers
• Erode brand value
• Industry Price Wars
Promotional Pricing – Challenges
• Discount / allowance
• Segmented
• Psychological
• Promotional
• International
• Prices charged in a specific country depend on many factors
– Economic conditions
– Competitive situation
– Laws / regulations
– Distribution system
– Consumer perceptions
– Corporate marketing objectives
– Cost considerations
Strategies
Price Adjustment Strategies
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