1 Pricing Strategies BBI2 – Introduction to Business Adapted from an original PPT by Sameer Mathur, Ph.D.Assistant Professor (Marketing), McGill University

Price Money Charged for a Product or Service Generates RevenueEasy to Change

Many Names

LowHigh Low High Economy Pricing Market Penetration Market Skimming Premium Pricing Price Quality Pricing Strategies

Market Skimming Applies to new, distinctive products, early in the Product Life Cycle

Market Skimming Most consumer electronic products The iPod was priced $259 in 2004.

Captive Product Pricing

Two Pricing Mistakes Reducing Price Too Soon Pricing Based on Cost instead of Customer Value

Economy Pricing

Premium Pricing

Price Adjustment Strategies Discount / allowance Segmented Psychological Promotional Types of discounts –Cash discount –Quantity discount –Seasonal discount Allowances –Trade-in allowances –Promotional allowances Strategies

Quantity Discounts in Public Transport 12

Two-part Tariffs Total Price = Retail Price + Shipping Price Total Price = Retail Price + Shipping Price

Seasonal Discounts

Trade In

(Pure) Bundling

(Mixed) Bundling

Price Adjustment Strategies Discount / allowance Segmented Psychological Promotional 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

Pricing a Product-Line

20 Product Lines in India High Quality Low Quality Toyota Corolla Altis Toyota Camry W1

Time Pricing

22 Student Discounts in Public Transport

Segmented Pricing Effectiveness –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

Price Adjustment Strategies Discount / allowance Segmented Psychological Promotional International 25 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

Psychological Pricing

This ad for a luxury priced car attempts to show that Mercedes owners form important relationships with their cars

Price Adjustment Strategies Discount / allowance Segmented Psychological Promotional Temporarily pricing products below the list price or even below cost –Contracts, Special-event pricing –Cash rebates –Low-interest financing, warranties –Loss leaders Strategies

29 Promotional Cellphone Pricing PROMOTIONALPRICING

30 No Promotional Pricing

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Loss Leader Sold at (or below) cost ~Frequently purchased product ~Inconveniently Located~Perishable

No Loss Leader => Every Day Low Pricing 34

Promotional Pricing - Challenges –Easily copied by competitors –Creates deal-prone consumers –Erode brand value –Industry Price Wars