Copyright 2006 – Biz/ed Pricing Strategies

Copyright 2006 – Biz/ed Introduction We need to set price when we have a new product, or when we enter a new market with an existing product How? –Need to decide what position you want your product to be in.

Copyright 2006 – Biz/ed New Product Pricing strategies Penetration Pricing Price set to ‘penetrate the market’ ‘Low’ price to secure high volumes Typical in mass market products – chocolate bars, food stuffs, household goods, etc. Suitable for products with long anticipated life cycles May be useful if launching into a new market

Copyright 2006 – Biz/ed Market Skimming High price, Low volumes Skim the profit from the market Suitable for products that have short life cycles or which will face competition at some point in the future (e.g. after a patent runs out) Examples include: Playstation, digital technology, new DVDs, etc. Plasma screens: Currently at high prices but for how long? Title: Thin-shaped television. Copyright: Getty Images, available from Education Image Gallery

Copyright 2006 – Biz/ed Product Line Pricing Setting Price Steps Between Product Line Items i.e. $299, $399 Product Line Pricing Setting Price Steps Between Product Line Items i.e. $299, $399 Optional-Product Pricing Pricing Optional or Accessory Products Sold With The Main Product i.e. Car Options Optional-Product Pricing Pricing Optional or Accessory Products Sold With The Main Product i.e. Car Options Captive-Product Pricing Pricing Products That Must Be Used With The Main Product i.e. Razor Blades, Film, Software Captive-Product Pricing Pricing Products That Must Be Used With The Main Product i.e. Razor Blades, Film, Software By-Product Pricing Pricing Low-Value By-Products To Get Rid of Them i.e. Production of Meat, Petroleum products, Chemicals, Zoos By-Product Pricing Pricing Low-Value By-Products To Get Rid of Them i.e. Production of Meat, Petroleum products, Chemicals, Zoos Product-Bundle Pricing Pricing Bundles Of Products Sold Together i.e. Season Tickets, Computer Makers Product-Bundle Pricing Pricing Bundles Of Products Sold Together i.e. Season Tickets, Computer Makers Product Mix Pricing Strategies Product Mix Pricing Strategies

Copyright 2006 – Biz/ed Price Adjustment Strategies Discount and Allowance pricing- - Cash discounts : price reduction to buyers who pay their bills promptly - Trade Discounts: offered to Trade Channel members who perform certain functions such as selling, storing, record keeping - Seasonal Discount : Price reduction to buyers who buy Merchandise or services out of season. -Trade-in- Allowance – price reduction from list price given for turning in an old item when buying a new one. -Promotional Allowance- Price reductions to reward Dealers for participating in advertising and sales support program

Copyright 2006 – Biz/ed Segmented Pricing Customer segment pricing – Low fares for students and senior citizens Product-form pricing – Price varies disproportionately with Quantity Location pricing – Theatres vary seat prices because of Audience preferences Time pricing – Resorts giving seasonal and weekend discounts, Weekend vs Weekdays (Revenue Management, Yield Management)

Copyright 2006 – Biz/ed Psychological Pricing Used to play on consumer perceptions Classic example – Rs instead of Rs100! Sales house in EDM (IInd Floor) says All prices under 495/- Reference prices – Prices that buyers carry in their mind and refer to when looking at a given product.

Copyright 2006 – Biz/ed Promotional pricing Temporarily pricing products below the list price and sometimes even cost to create buyer excitement and urgency. e.g rebates, “Shoppers Festival” Adverse Effects : Consumers become “Deal prone”, erodes Brand Value, Marketers addicted to promotional pricing, Lead to Industry price wars,

Copyright 2006 – Biz/ed Geographical pricing F-O-B Pricing (Free on board)- each customer pays the Transport cost. Uniform Delivered pricing- (Opposite of F-O-B) company charges same price plus freight to all customers, regardless of their location. Zone pricing – Company sets two or more zones. All customers within a given zone pay a single Total price. E.g Mumbai and Ahmadabad in west zone Basing Point Pricing – selects a city as basing point and charge all customers the freight cost from that city to the customer location, regardless of the city from which the goods are a actually shipped. E.g sugar, cement, Steel and Automobile companies use this pricing

Copyright 2006 – Biz/ed Dynamic pricing Adjusting prices continuously to meet the characteristics and behaviors of specific customers. E.g ebay or priceline Amazon.com mine their database to gauge specific shoppers desire, measure his or her means, instantaneously tailor products to fit that shoppers behavior, and price products accordingly Dell uses Dynamic pricing to achieve real time between Demand and Supply. It benefits the customers but Marketers need to be careful

Copyright 2006 – Biz/ed International pricing What prices to charge to different countries ? e.g Samsung might introduce a new product into mature Market in highly developed countries with goal of quickly gaining mass market share will use penetration pricing. In contrast it might enter less developed market by targeting smaller, less price sensitive segments, in this case Skimming pricing makes sense.

Copyright 2006 – Biz/ed Price Changes Initiating price cuts Initiating price Increase- rising crude prices Buyer Reaction to price changes

Copyright 2006 – Biz/ed Information Needed for Price Change Customers’ ability & willingness to buy; customer lifestyle; benefits sought; characteristics of the product. Need to know everything about the competitors –How would competitors react to our price change? –In obtaining competitors’ information, remember the value of the information