Pricing Strategies Chapter 26

Cost-Oriented Pricing  Markup Pricing – difference between cost and price  Cost-Plus Pricing – costs and expenses, plus desired profit

Cost-Oriented Examples

Demand-Oriented Pricing  Consumer’s perceived value  Number of substitutes available  Brand loyalty  Minor differences – tickets, fridge colors

Demand-Oriented Examples

Competition-Oriented Pricing  Price Above  Price Below  Price In Line with Competition  Ignore Cost and Demand  Competitive-Bid Pricing

Competition-Oriented Examples

Combining Pricing Considerations  Cost-Oriented determines the price floor  Demand-Oriented determines range  Competition-Oriented determines relative position  Product to product considerations

Pricing Policies  One-Price Policy – all customers are charged the same price  Flexible-Price Policy – customers pay different prices for the same type or amount of merchandise  Bargaining takes place with cars, antiques, furniture, and jewelry  Internet sites – name your price

One-Price versus Flexible-Price

New Product Introduction  Skimming Pricing – high price when demand is greater than supply  Penetration Pricing – lower price to gain market share

Skimming versus Penetration

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

Odd-Even Pricing  Setting prices that all end in either odd or even numbers  Odd numbers convey a bargain ($9.99, $79, $845.67)  Even numbers convey a quality image ($100, $20, $50)

Odd-Even Pricing

Prestige Pricing  Higher-than-average prices suggest status and prestige  Many assume higher price equals higher quality

Prestige Example

Multiple-Unit Pricing  Suggests a bargain and helps to increase sales volume  3 for $99  The 1 for $2, 2 for $3, 3 for $5 dilemma

Multiple-Unit Example

Bundle Pricing  Several complementary products in a package sold at a single price  Help to sell items that may not have sold on their own

Bundle Price Example

Promotional Pricing  Loss leader  Special event  Rebates

Everyday Low Prices  Low prices that are set on a consistent basis with no intention of raising them or offering discounts in the future  Sales stability  Wal-Mart is famous for this

Everyday Low Prices Example

Price Lining  All items in a certain category are set at the same price. $25, $35, and $50.  Make the price differences large enough to differentiate  Allows sales people to easily offer a more expensive (more profitable) alternative

Price Lining Example

Discount Pricing  Cash Discounts – incentives to pay the bill early (2/10, net 30)  Quantity Discounts – lower price for larger quantity  Trade Discounts – prices to wholesalers versus retailers  Seasonal Discounts – price change based on time of year (Christmas lights, mower)

Discount Pricing