Pricing Strategies Pricing Strategies After deciding whether to use a cost-oriented, demand-oriented, or a competition-oriented policy, your company will develop a pricing strategy.
Jan 25, 2016
Pricing StrategiesPricing Strategies
After deciding whether to use a cost-oriented, demand-oriented, or a competition-oriented policy, your company will develop a pricing
strategy.
Pricing Strategies
• Price lining
• Bundle pricing
• Geographical pricing
• Psychological pricing
• Prestige pricing
• Everyday low pricing (ELDP)
• Promotional Pricing
Price Lining
• A store might charge $25, $35, and $50 for blouses to establish low, middle and high quality items.
• Price differences must be great enough to represent different qualities.
Product Mix Strategies
• Optional Products – Setting prices for accessories or options (example: cars)
• Captive Products – Set price for a product low, but make supplies needed to run that product, high (example: printers)
• By-product – Setting prices low for waste (example: Wood chips)
Bundle Pricing
• Offering several complementary products in a package that is sold at a single price that is lower than the cost of buying each item separately
• Advantage: Businesses can sell items that they may not have sold otherwise which increases sales and revenue
Geographical pricing
• Adjusting the price of an item because of the location of the customer
• Delivered price includes delivery charges• International pricing
– Economic conditions– Exchange rate– Shipping– Tariffs– Consumers’ income levels and lifestyles
Psychological Pricing
• Odd-even
• Prestige
• Multiple Unit
• Everyday low price
Odd-even
• Odd numbers convey a bargain– $19.99, $9.95, $.99
• Even numbers convey quality– $10, $50, $50.00
Prestige Pricing
• Set a higher than average price to suggest status and high quality
Multiple-Unit
• Pricing items in multiples suggests a bargain
• Like 3 for $1.00, instead of $.34 each
ELDP (everyday low price)
• Consistent low prices• Will not raise or lower price in the future• Not as deeply discounted as promotional
pricing• Advantages
– Creates stability– Reduced promotional expenses– Reduced losses due to discounting
Promotional Pricing
• Loss Leader
• Special event
• Rebates
• Coupons
Loss Leader
• Below cost prices
• Used to increase traffic
• Used to increase sales in other products
Special Event
• Items reduced in price for a short time based on a specific happening
• Manufacturers offer special promotions to retailers that are willing to advertise or promote a manufacturer’s products
Rebates
• Partial refunds from the manufacturer• Consumers need proof of purchase and
store receipt• What is their hope?• Manufacturers also offer rebates to retailers
and wholesalers– If you purchase a certain amount of goods prior
to running a promotion
Coupons
• Allow customers to take reductions at the time of purchase
• Found where?
• Hopefully, consumer will buy product just because they have a coupon.
Discounts and Allowances
• Cash discounts
• Quantity discounts
• Trade discounts
• Seasonal discounts
• Special allowances
Cash Discounts
• Offered to encourage quick payment
• 2/10, n/30
Quantity Discounts
• Place a large order, get a discount
• Non-cumulative offered per order (the more you buy, the larger the discount)
• Cumulative offered over a specified period of time (6 months) OR
• Buyers might sign a contract agreeing to buy a certain amount– Example: Advertisers who agree to use a certain amount
of newspaper columns might be charged cheaper rates
Seasonal Discounts
• Discount for buying out of season
• Manufacturers use to obtain orders
• Retailers use to reduce cost of storage
Allowances
• Go directly to the buyer
• Offered a price reduction to sell back an old model
Trade Discounts
• Not really discounts at all
• Prices quoted to retailers and wholesalers
• Percentage discount from list price or manufacturer’s suggested retail price
Set Prices
• Based on all the information in the first five steps of price setting, a company sets a price for its product.