1. Pricing Strategies

2. Over the last couple periods we have come to the conclusion that: – Marketers must consult with production in order to set a minimum price for the product – The minimum price needs to ensure that the company is making as much money as they are spending Break-Even Analysis

3. Pricing Strategies Once businesses know the minimum price they can charge they will develop a pricing strategy – A plan to price a product to achieve specific marketing objective There are 3 main Pricing Strategies 1.Market Skimming 2.Penetration Pricing 3.Competitive Pricing

4. Market Skimming A strategy used when a product or service is first introduced to the market Initially set the price high before competitors enter the market – Companies try to recover their R &D costs as soon as possible – No competition will mean that consumers will be willing to pay a higher price to first have their hands on the product

5. Market Skimming Think of market skimming like a pool boy skims a pool – The entire market is the swimming pool – The business wants to get as much off the top of the pool as possible As soon as break-even point is made – companies can lower the price

6. Market Skimming Competitors will come in and “low-ball” the business that entered the market first – This is the major flaw of skimming Skimming can be used to: – Create a Buzz – Manage Demand until production increased – Attracts a high income target Apple uses this strategy with the majority of their new products

7. Penetration Pricing Marketers will set a price very low in order to attract customers away from the competition Example: If Lovett Cola were to enter the market selling cans of cola for 75 cents per can. – People see the price – figure the cola tastes similar to Coke or Pepsi and buy Lovett Cola

8. Penetration Pricing The goal of this strategy: – To make a large number of sales at the low price in order to recoup the costs – To Build a Customer Base Can only be done if the variable costs are low

9. Competitive Pricing The most popular pricing strategy Follow the leader pricing – The strategy is to position your price around the level that your competition is priced, called the benchmark price Example: Future Shop --- Price Matching The amount of sales is dependent on advertising, distribution & other promotions

10. Pricing Strategies The previous slides were large pricing strategies that are used by companies that are entering the market The following slides will discuss pricing strategies that can be used and changed on a more continuous basis when products/services are mature

11. Pricing Strategies Leader Pricing – Companies set low prices on a few items to draw customers and have them buy all products Price Lining – In this policy, identically priced items are grouped together in a store so that high markup items are grouped with lower ones – Example: The $20 rack at a retail clothing store is composed of jeans, t-shirts, pants, etc.

12. Pricing Strategies Everyday Low Prices – Here a company will guarantee that their price is the lowest, and hence don’t need to advertise – Example: Walmart Super Sizing – Consumers receive a larger portion of an item by paying a slightly higher price – This allows companies to increase the profit on a sale significantly Negotiated Pricing – Here the buyer and seller decide on the price (houses are the obvious example) – Can result in a lower price for the consumer

13. Pricing Strategies Interest-Free Pricing – Customers are offered the chance to take the product for a year and pay no interest – Furniture stores often use this pricing strategy Combo Pricing – Consumers are offered a lower price in one item if they purchase another item (which usually has a high markup) – Also called bundling (ex. Rogers) Psychological Pricing – Prices are made more attractive to consumers (example $9.99 instead of $10) – Thinking about what a certain price will “say” about a product or service

14. Pricing Strategy Purchase Discounts – Volume discounts are an example (buy 2 get 1 free) – Often used to move product – In these cases profits are often due to savings in distribution, packaging, etc.

15. Pricing Strategies Open PowerPoint Quiz