2. Section Objectives Identify factors that affect price strategy.
Summarize the marketing objectives related to pricing.
Describe the components that go into making price strategy decisions.

3. Content Vocabulary Basic pricing price skimming penetration pricing
Product life cycle

4. Pricing Strategy Decisions
Consider your target market as you make these pricing strategy decisions:
Select a basic approach to pricing.
Determine your pricing policy.
Set a price based on the stage of the product life cycle. 4

5. competition-based pricing
Setting a Basic Price
There are three basic approaches to pricing:
cost-based pricing
demand-based pricing
competition-based pricing 5

6. Setting a Basic Price
Cost-based pricing – Figure your cost to make or buy your product. Determine the related cost of doing business. Then add your projected profit margin to add up to the price!
Demand – Based Pricing – Determine what your customers are willing to pay for your product. Only works when the demand is inelastic and when customers see your product as different from the competition. i.e. iPhone!
Competition – Based Pricing – Only focused on being competitive. Determine what your competitors charge. Then decide to price below, in line with or above the competition.
NOTE: A business can use a combination of all of the above to price their items. 6

7. Pricing Policies
Establishing a pricing policy frees you from making the same pricing decisions over and over again and lets employees and customers know what to expect.

8. Pricing Policies
A flexible-price policy is one in which customers pay different prices for the same type or amount of merchandise. i.e. car dealerships
A one-price policy is one in which all customers are charged the same price for all the goods and services offered for sale. Strongly recommended for service businesses. i.e. most retail stores!

9. Product Life Cycle Pricing
All products move through the four-stage life cycle: 1
Introduction 2
Growth 3
Maturity 4
Decline 9

10. Product Life Cycle Pricing
Introduction – Sales volume is relatively low, marketing costs are high, profits are low or even negative. Use price skimming or penetration pricing. May discourage competition.
Growth – Sales climb rapidly, unit costs are decreasing, product begins to show a profit, competitors come into the market. Make very slight changes to prices to attract new customers.
Maturity –Sales begin to slow and profit peak. Profits fall as competition increases. Identify new markets or make improvements. Goal is to stretch the life cycle. Automobiles have been in the maturity stage for 30 years.
Decline – Sales & Profits continue to fall. Cut prices to generate sales or clear inventory. Products (or businesses) are phased out. 10

11. Product Life Cycle Pricing
Price skimming is commonly used when introducing a product.
price skimming
the practice of charging a high price on a new product or service in order to recover costs and maximize profits as quickly as possible; the price is then dropped when the product or service is no longer unique

12. Product Life Cycle Pricing
Penetration pricing is also commonly used when introducing a product.
penetration pricing
a method used to build sales by charging a low initial price to keep unit costs to customers as low as possible

13. Product Life Cycles – With the introduction of Blue-ray disc players and other High-Definition formats, DVD players moved closer to the end of the maturity stage of their life cycle. What are some products that are still in their growth phase?