Pricing Strategies Chapter 11

11- 1 Definitions Market-Skimming Pricing Setting a high price for a new product to skim maximum revenues layer by layer from segments willing to pay the high price. Setting a high price for a new product to skim maximum revenues layer by layer from segments willing to pay the high price.

11- 2 Definitions Market-Penetration Pricing Setting a low price for a new product in order to attract a large number of buyers and a large market share.

11- 3 Product Line Pricing Setting price steps between product line items. Setting price steps between product line items. Price points Price points Product Mix Pricing Strategies

11- 4 Optional-Product Pricing Pricing optional or accessory products sold with the main product Pricing optional or accessory products sold with the main product Supplemental software, digital cameras, and printers sold with a new PC are examples Supplemental software, digital cameras, and printers sold with a new PC are examples Product Mix Pricing Strategies

11- 5 Captive-Product Pricing Pricing products that must be used with the main product Pricing products that must be used with the main product High margins are often set for supplies High margins are often set for supplies Services: two-part pricing strategy Services: two-part pricing strategy Fixed fee plus a variable usage rate Fixed fee plus a variable usage rate Product Mix Pricing Strategies

11- 6 By-Product Pricing Pricing of low-value by-products to get rid of them Pricing of low-value by-products to get rid of them Product Mix Pricing Strategies

11- 7 Product Bundle Pricing Pricing bundles of products sold together Pricing bundles of products sold together Common in fast food industry Common in fast food industry Product Mix Pricing Strategies

11- 8 Price Adjustment Strategies Types of discounts Cash discount Cash discount Quantity discount Quantity discount Functional (trade) discount Functional (trade) discount Seasonal discount Seasonal discountAllowances Trade-in allowances Trade-in allowances Promotional allowances Promotional allowances Discount / allowance SegmentedPsychologicalPromotionalGeographicalInternational Strategies

11- 9 Price Adjustment Strategies Types of segmented pricing strategies: Customer-segment Customer-segment Product-form pricing Product-form pricing Location pricing Location pricing Time pricing Time pricing Also called revenue or yield management Certain conditions must exist for segmented pricing to be effective Discount / allowance SegmentedPsychologicalPromotionalGeographicalInternational Strategies

Price Adjustment Strategies The price is used to say something about the product. Price-quality relationship Price-quality relationship Reference prices Reference prices Differences as small as five cents can be important Differences as small as five cents can be important Numeric digits may have symbolic and visual qualities that psychologically influence the buyer Numeric digits may have symbolic and visual qualities that psychologically influence the buyer Discount / allowance SegmentedPsychologicalPromotionalGeographicalInternational Strategies

Price Adjustment Strategies Temporarily pricing products below the list price or even below cost Loss leaders Special-event pricing Special-event pricing Cash rebates Cash rebates Low-interest financing, longer warranties, free maintenance Low-interest financing, longer warranties, free maintenance Promotional pricing can have adverse effects Discount / allowance SegmentedPsychologicalPromotionalGeographicalInternational Strategies

Price Adjustment Strategies Types of geographic pricing strategies: FOB-origin pricing FOB-origin pricing Uniform-delivered pricing Uniform-delivered pricing Zone pricing Zone pricing Basing-point pricing Basing-point pricing Freight-absorption pricing Freight-absorption pricing Discount / allowance SegmentedPsychologicalPromotionalGeographicalInternational Strategies

Price Adjustment Strategies Prices charged in a specific country depend on many factors Economic conditions Economic conditions Competitive situation Competitive situation Laws / regulations Laws / regulations Distribution system Distribution system Consumer perceptions Consumer perceptions Cost considerations Cost considerations Discount / allowance SegmentedPsychologicalPromotionalGeographicalInternational Strategies