Pricing and Pricing Strategies

Pricing and
Pricing
Strategies
Chapter 10 & 11
Price is the sum of all the
values that customers give
up to gain the benefits of
What is having or using a product
or a service.
a Price? ▸Price is the only element

in the marketing mix that
produces revenue; all other
elements represent cost.
Pricing strategies
1.New-Product Pricing Strategies
2.Product Mix Pricing Strategies
3.Price Adjustment Strategies
4.Price Changes
New Product
Pricing Strategy
New Product Pricing
Two Broad Strategies
▸Market skimming pricing – set a high initial price
▸Market penetration pricing – set a low initial price
New Product Pricing Strategy
Market skimming pricing Market penetration pricing

• It sets a low initial price in
• It is a strategy with high initial prices
order to penetrate the market
to “skim” revenues layer-by-layer
from the market.
quickly and deeply to attract a
large number of buyers quickly
• Product quality and image must to gain market share.
support the price.
• Price sensitive market.
• The costs of producing a smaller
volume cannot be so high that they • Production and distribution
cancel the advantage of higher prices. costs must fall as sales volume
increases.
• Competitors should not be able to
enter the market easily and undercut • Low prices must keep
the high price. competition out of the market.
Product-Mix
Pricing Strategies
Product-Mix Pricing Strategies
Product-Mix Pricing Strategies: The firm looks for a set
of prices that maximizes the profits on the total product
mix.
Five product mix pricing situations.
▸Product line pricing – the products in the product line
▸Optional product pricing – optional or accessory products
▸Captive product pricing - complementary products
▸By-product pricing – by-products
▸Product bundle pricing- several products
• Product Line Pricing considers the cost difference between
products in the line, customer evaluation of their features, and
competitors’ prices.
• The price differences represent the perceived quality differences
• Normal Hair Rs.390
• Anti-dandruff Rs.490
• Hair Fall Defense Rs.490
• Oily Hair Rs.390
9/3/20XX Presentation Title 9

• Optional Product Pricing takes into account optional
or accessory products along with the main product.
• Decide which items to include in the base price and
which to offer as options.
• New car with sports rims Rs.6000000
• New car with ordinary rims Rs. 5800000
• Captive Product Pricing involves products that must be
used along with the main product.
• Price the main, or driver product low and seek high
margins on the supplies (toothbrush, toothpaste)
▸ For services: two-part pricing is where the price is broken
into fixed fee and variable usage fee. (internet, electricity)
–– The fixed amount should be low enough to induce usage
of the service; profit can be made on the variable fees.
• By-product Pricing refers to products with little or no
value produced as a result of the main product.
▸Producers will seek little or no profit
▸Producers should accept any price that covers more
than the cost to cover storage and delivery.
Product Bundle Pricing combines several products and
offer the bundle at a reduced price.
▸Price bundling can promote the sales of products 1
bottle: $2.70 Bundled 2 bottles: $4.90
Price Adjustment
Strategies
Price Adjustment Strategies
Companies adjust basic prices to account for various customer
differences and changing situations
▸Discount and allowance pricing

▸Segmented pricing
▸Psychological pricing
▸Dynamic pricing
▸International pricing
Discount and allowance pricing reduces prices to reward
customer for certain responses such as paying early,
volume purchases, and off-season buying.
▹Discounts
▹Cash discount for paying promptly.
▹Quantity discount for buying in large volume.
▹Functional (trade) discount for selling, storing,
distribution, and record keeping.(business to business)
▸Customer Segment Pricing is when different customer pay for
different prices for the same product or service. (membership)
▸Product Form Segment Pricing is when different versions of the
product are priced differently but not according to differences in cost.
▸Location pricing is when the product is sold in different geographic
areas and priced differently in those areas even though the cost is the
same. (cinemas, airports, motorways)
▸Time pricing is when a firm varies its prices by the season, the month,
the day, and even the hour. (Peak hours=charge high prices to
discourage people, air travelling)
• Psychological Pricing occurs when sellers consider
the psychology of prices and not simply the economics.
• E.g Rs.8999 vs Rs 9000.
• Reference Prices are prices that buyers carry in their
minds and refer to when looking at a given product.
(SALE)
Price Adjustment strategies
Dynamic Pricing is when prices are adjusted continually to meet the
characteristics and needs of the individual customer and situations.
International Pricing is when prices are set in a specific country
based on country-specific factors.
–Economic conditions
–Competitive conditions
–Laws and regulations
–Infrastructure
–Company marketing objectives
Price changes
Price Changes
Initiating Pricing Changes Buyers’ Interpretation to Price
▸Price cuts is a reduction in selling Changes
price. ▸Price cuts
▹Excess capacity ▹New models will be available
▹Increase market share ▹Models are not selling well
▸Price increases is an increase in ▹Quality issues
selling price ▸Price increases
▹Cost inflation ▹Product is “hot”
▹Increased demand and lack of supply ▹Company greed
Price Changes
Responding to Price Changes
▸Questions
▹Why did the competitor change the price?
▹Is the price cut permanent or temporary?
▹What is the effect on market share and profits?
▹Will competitors respond?
▸Solutions
▹Reduce price to match competition
▹Maintain price but raise the perceived value through communications
▹Improve quality and increase price
▹Launch a lower-price “fighting brand”
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Pricing and

a Price? ▸Price is the only element

Market skimming pricing Market penetration pricing

9/3/20XX Presentation Title 9

▸Discount and allowance pricing

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