PRICING CONSIDERATIONS & STRATEGIES

Lesson Objectives Identify pricing techniques that are used primarily in the consumer market Identify pricing techniques that are used primarily in business-to- business sales

Pricing Strategies Two Main Strategies 1.Physiological Pricing 2.Discount Pricing

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

A. Odd/Even Pricing Prices end in odd or even numbers Odd numbers convey bargain image ($19.99) Even numbers convey quality/high end ($100.00) $2.99

B. Prestige Pricing Prices purposely set high to create image of quality Targeted toward markets who equate high price with quality Examples –Perrier Water –Nike – Air Jordan’s –Lexus

C. Multiple Pricing Targeted toward value- conscious markets Example: 3 for $.99 instead of $.33 each $.99 ea. OR 3 for $2.50

D. Promotional Pricing Used with sales promotions Temporary price reduction Designed to increase store traffic Loss-leader pricing Special Event pricing –Back-to-school –4 th of July –Memorial Day

E. Price Lining All merchandise in one category priced at the same price All Warm-up Suits for: $39.99, $59.99, and $79.99 Typical in Department Store setting Advantages Customers differentiate between value Helps customers make decisions Allows store to target multiple markets Allows salespersons to “up sell” or “down sell” more easily

F. Yield-Management Pricing Pricing at different prices to maximize revenue when limited capacity is involved. Concert and Sporting Event Seating

2. Discount Pricing Reductions in price given based on a buyer’s behavior Targeted toward industrial sales

A. Cash Discounts To encourage quick payment of bill Example 2/10 net 30 Read: If paid by the 10 th, receive 2% discount, OR full amount due by the 30 th of the month

3/15 net 28 Invoice (bill) = $3200 Paid on the 8 th of the month $3200 X.03 = $96 $ $96 = $3104

B. Quantity Discounts Generally – the more you buy, the more you save Similar to multiple pricing for personal consumers To encourage large orders –Cumulative: over a period of time –Non-cumulative: one order/one time

C. Seasonal Discounts To encourage purchasing in advance of the customary buying period. “Early bird orders” Helps organize production and labor Off-season resort sales

E. Promotional Discounts Given for advertising or promoting manufacturer’s products % reduction in price Allowance - free merchandise Cooperative advertising – costs shared

Review What is the pricing technique used primarily for the consumer market? Name the 5 kinds of psychological pricing. What is the pricing technique used primarily for the industrial market? Name the 4 kinds of discount pricing.