Pricing Strategies

3 Basic Pricing Concepts

1. Cost Oriented Pricing Markup Pricing Cost Plus Pricing The difference between the price of an item and its cost. Usually expressed as a percentage. Cost Plus Pricing Similar to markup pricing, but calculates costs based on the item and situations.

2. Demand -Oriented Pricing Marketers determine what present consumers are willing to pay for given goods and services. You will pay more for close-up seats at a sporting event. You pay more for phone calls during peak times.

3.Competition-Oriented Pricing Competitive Bid Pricing determining the price for a product on the basis of bids submitted by competitors to a company or government agency. Going Rate Pricing Involves studying the competition’s prices to be sure one’s own prices are inline.

Combined Pricing Strategies Using the three basic pricing strategies together to determine the price of a product or service.

One-Price Policy vs. Flexible -Price Policy All consumers are charged the same amount for a product. Flexible-price policy People bargain for a price used cars furniture

The Product Life Cycle

1.New Product Introduction Can use two different price techniques Skimming pricing sets a very high price for a new product based on high demand for the product. Trendsetters will buy. High prices attract competition.

2. Penetration Pricing Setting the price of a new product very low. Try to get as many people as possible to buy the product to gain market share. Take customers from the competition who are charging higher prices.

3. Growth Sales increase rapidly an total costs per unit decrease because volume absorbs the fixed costs. Marketers want to stay in this stage as long as long as possible.

4. Maturity The sales begin to level off because demand is cut in half. The goal is to stretch the life of the product or add new features or improvements to revitalize the product.

5. Decline When sales decrease and profit margins are reduced. To remain profitable, marketers try to reduce costs of manufacturing, or they cut back their advertising and other promotional activities.

Psychological Pricing Techniques that create an illusion for customers or that make shopping easier form them.

1. Odd-Even Pricing A technique that involves setting prices that all end in either odd or even numbers is known as odd-even pricing. Some retailers end all regular price merchandise in .00 and sale merchandise in .99.

2.Prestige Pricing The practice of setting prices higher-than-average to suggest status and prestige to the customer. Examples: Lenox China Rolls Royce Waterford crystal

3.Multiple Pricing Multiple pricing suggests a bargain and helps to increase sales volume.

4.Promotional Pricing Loss leader pricing Special event pricing offering an item for sale at cost or slightly above. Special event pricing Rebates, coupons, special discounts. Prices go back to normal after the event.

5.Price Lining Stores that offer merchandise at specific prices. Determined by the company should represent low, medium and high prices

Sellers offer reductions from the usual price. Discount Pricing Sellers offer reductions from the usual price.

1. Cash Discounts Cash discounts are offered to buyers to encourage them to pay their bills quickly. 2/10 net 30 means 2% discount if paid in 10 days, otherwise the bill is due in 30 days.

2. Quantity Discounts Discounts offered for placing large orders. Non-cumulative quantity discounts are offered on one order Cumulative quantity discounts are for purchases placed over a period of time

3.Trade Discounts The way manufacturers quote prices to wholesalers and retailers. They may give members of the distribution channel a discount from the list price.

4. Seasonal Discounts Discounts for buying early. Early bird discounts Resorts have “off season rates”

5.Promotional Discounts and Allowances Discounts that are offered to wholesalers and retailers who are willing to promote a manufacturer’s products.

6 Steps for Determining Price 1. Determine price objectives 2. Study costs 3. Estimate Demand 4. Study Competition 5. Decide of a Pricing Strategy 6. Set Price