POM CHAP 11

PRINCIPLES OF
MARKETING
CHAPTER 11
Pricing Strategies
Assoc. Prof. Tran Tien Khoa
Copyright © 2021, 2018, 2016 Pearson Education, Inc.

PRICING STRATEGIES
Topic Outline
NEW-PRODUCT PRICING PRODUCT MIX PRICING

0 STRATEGIES 0 STRATEGIES
1 2
PRICE
PUBLIC POLICY
0 ADJUSTMENT 0 PRICE CHANGES 0 AND MARKETING
STRATEGIES
3 4 5
New-Product
Pricing
Strategies
New-Product Pricing Strategies
Market-skimming pricing is a
strategy with high initial prices
to “skim” revenue layers from
the market (eg. affluent
consumers)
• Product quality and image must
support the price
• Buyers must want the product
at the price
• Costs of producing the product
in small volume should not
cancel the advantage of higher
prices
• Competitors should not be able
to enter the market easily
Example: case of Heineken,
New-Product Pricing Strategies
Market-penetration pricing
sets a low initial price in order
to penetrate the market
quickly and deeply to attract a
large number of buyers
quickly to gain market share
• Price sensitive market
• Inverse relationship of
production and distribution
cost to sales growth
• Low prices must keep
competition out of the
market
Example: IKEA in China
Market in 2002
PRODUCT MIX
PRICING
STRATEGIES
PRODUCT MIX PRICING STRATEGIES
Optional- Captive-
Product
product product
line pricing
pricing pricing
Product
By-product
bundle
pricing
pricing
Copyright ©2014 by Pearson Education

Product line pricing takes into account the cost differences

between products in the line, customer evaluation of their
features, and competitors’ prices

Optional-product pricing takes into account optional or

accessory products along with the main product
$ 129 $ 153

By-product pricing
refers to products
with little or no
value produced as
a result of the
Captive- main product.
product pricing Producers will seek
involves little or no profit
products that other than the cost
must be used to cover storage
along with the and delivery.
main product

PRICE MIX PRICING STRATEGIES
Product bundle pricing combines several products

at a reduced price
PRICE-
ADJUSTMENT
STRATEGIES
PRICE-ADJUSTMENT STRATEGIES
Discount and
Segmented
allowance
pricing
pricing
Psychological Promotional
pricing pricing
Geographic Dynamic Internationa

pricing pricing l pricing
Discount and allowance pricing reduces prices to

reward customer responses such as paying early or
promoting the product
• Discounts
• Allowances
Segmented pricing is used

when a company sells a
product at two or more prices
even though the difference is
not based on cost
Example:
flight ticket
economy vs. business class
Segmented
pricing
To be effective:
• Market must be segmentable
• Segments must show different degrees of demand
• Watching the market cannot exceed the extra revenue
obtained from the price difference
• Must be legal
Psychological pricing
Occurs when sellers consider the psychology of prices and

not simply the economics
Reference prices
Are prices that buyers carry in their minds and refer to when
looking at a given product
⚬ Noting current prices
⚬ Remembering past prices
⚬ Assessing the buying situations
Promotional pricing
Is when prices are temporarily priced below list price or cost

to increase demand
• Loss leaders
• Special event pricing
• Cash rebates
• Low-interest financing
• Longer warrantees
• Free maintenance
Promotional pricing
Risks of promotional pricing

• Used too frequently, and copies by competitors
can create “deal-prone” customers who will wait
for promotions and avoid buying at regular price
• Creates price wars
Geographical pricing
Geographical pricing is used for customers in different

parts of the country or the world
• FOB-origin pricing
• Uniformed-delivered pricing
• Zone pricing
• Basing-point pricing
• Freight-absorption pricing
FOB-ORIGIN UNIFORMED-
(FREE ON BOARD) DELIVERED
FOB-origin (free on Uniformed-delivered

board) pricing means pricing means the
that the goods are company charges the
delivered to the carrier same price plus freight to
and the title and all customers, regardless
responsibility passes to of location
the customer
• Zone pricing means that the company sets up two or

more zones where customers within a given zone pay
a single total price
• Basing-point pricing means that a seller selects a
given city as a “basing point” and charges all
customers the freight cost associated from that city to
the customer location, regardless of the city from
which the goods are actually shipped
• Freight-absorption pricing means the seller

absorbs all or part of the actual freight charge
as an incentive to attract business in
competitive markets
Dynamic and Internet
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
objective
PRICE
CHANGES
INITIATING PRICING CHANGES
Price cuts occur due to
⚬Excess capacity
⚬Increased market
share
Price increase from
⚬Cost inflation
⚬Increased demand
⚬Lack of supply
BUYER REACTIONS TO PRICING CHANGES
Price cuts
⚬New models will be

available
⚬Models are not selling well
⚬Quality issues
Price increase
⚬Product is “hot”
⚬Company greed
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
PUBLIC
POLICY AND
PRICING
PRICING WITHIN CHANNEL LEVELS
Price fixing: Sellers must set prices without

talking to competitors
Predatory pricing: Selling below cost with the
intention of punishing a competitor or gaining
higher long-term profits by putting competitors
out of business
PRICING ACROSS CHANNEL LEVELS
Robinson-Patman Act prevents unfair price discrimination
by ensuring that the seller offer the same price terms to
customers at a given level of trade
• Price discrimination is allowed:
⚬If the seller can prove that costs differ when selling to
different retailers
⚬If the seller manufactures different qualities of the
same product for different retailers
Retail (or resale) price

maintenance is when a
manufacturer requires a dealer to
charge a specific retail price for
its products
Deceptive pricing occurs when a seller
states prices or price savings that mislead
consumers or are not actually available to
consumers
• Scanner fraud failure of the seller to
enter current or sale prices into the
computer system
• Price confusion results when firms
employ pricing methods that make it
difficult for consumers to understand
what price they are really paying

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PRINCIPLES OF

Assoc. Prof. Tran Tien Khoa

Copyright © 2021, 2018, 2016 Pearson Education, Inc.

NEW-PRODUCT PRICING PRODUCT MIX PRICING

Copyright ©2014 by Pearson Education

Product line pricing takes into account the cost differences

Copyright ©2014 by Pearson Education

Optional-product pricing takes into account optional or

Copyright ©2014 by Pearson Education

Copyright ©2014 by Pearson Education

Product bundle pricing combines several products

Geographic Dynamic Internationa

Discount and allowance pricing reduces prices to

Segmented pricing is used

Occurs when sellers consider the psychology of prices and

Is when prices are temporarily priced below list price or cost

Risks of promotional pricing

Geographical pricing is used for customers in different

FOB-origin (free on Uniformed-delivered

• Zone pricing means that the company sets up two or

• Freight-absorption pricing means the seller

Dynamic pricing is when

International pricing is when

Price cuts occur due to

Price increase from

⚬New models will be

Price fixing: Sellers must set prices without

Retail (or resale) price

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