Pricing strategies - Marketing
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The document discusses various pricing strategies and concepts, including new product pricing strategies like market skimming and market penetration pricing. It also covers product mix pricing strategies, price adjustment strategies such as discounts and segmented pricing, and factors to consider when making price changes. Public policy concerns related to pricing such as predatory pricing and unfair trade practices are also summarized.
Pricing strategies - Marketing
- 2. Pricing Strategies • New-Product Pricing Strategies • Product Mix Pricing Strategies • Price Adjustment Strategies • Price Changes Topic Outline
- 3. New-Product Pricing Strategies • Market-skimming pricing • Market- penetration pricing Pricing Strategies
- 4. New-Product Pricing Strategies Market-skimming pricing is a strategy with high initial prices to “skim” revenue layers from the market • 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
- 5. 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 Pricing Strategies
- 6. Product Mix Pricing Strategies Pricing Strategies
- 7. Product Mix Pricing Strategies 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 Pricing Strategies
- 8. Product Mix Pricing Strategies Captive-product pricing involves products that must be used along with the main product Two-part pricing involves breaking the price into: – Fixed fee – Variable usage fee Pricing Strategies
- 9. Price Mix Pricing Strategies 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 other than the cost to cover storage and delivery. Pricing Strategies
- 10. Price Mix Pricing Strategies Product bundle pricing combines several products at a reduced price Pricing Strategies
- 12. Price-Adjustment Strategies Discount and allowance pricing reduces prices to reward customer responses such as paying early or promoting the product • Discounts • Allowances Pricing Strategies
- 13. Price-Adjustment Strategies Segmented pricing is used when a company sells a product at two or more prices even though the difference is not based on cost Pricing Strategies
- 14. Price-Adjustment Strategies 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 Pricing Strategies Segmented Pricing
- 15. Price-Adjustment Strategies 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 Pricing Strategies
- 16. Price-Adjustment Strategies 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 Pricing Strategies
- 17. Price-Adjustment Strategies 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 Pricing Strategies
- 18. Price-Adjustment Strategies 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 Pricing Strategies
- 19. Price-Adjustment Strategies • FOB-origin (free on board) pricing means that the goods are delivered to the carrier and the title and responsibility passes to the customer • Uniformed-delivered pricing means the company charges the same price plus freight to all customers, regardless of location Pricing Strategies
- 20. Price-Adjustment Strategies • 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 Pricing Strategies
- 21. Price-Adjustment Strategies • Freight-absorption pricing means the seller absorbs all or part of the actual freight charge as an incentive to attract business in competitive markets Pricing Strategies
- 22. Price-Adjustment Strategies Dynamic pricing is when prices are adjusted continually to meet the characteristics and needs of the individual customer and situations Pricing Strategies
- 23. Price-Adjustment Strategies 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 Pricing Strategies
- 24. Price Changes • Price cuts • Price increases Initiating Pricing Changes
- 25. Price Changes Initiating Pricing Changes
- 26. Price Changes Buyer Reactions to Pricing Changes
- 27. 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? Responding to Price Changes
- 28. Price Changes 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 Responding to Price Changes
- 29. Price Changes Responding to Price Changes
- 30. Public Policy and Pricing Price competition is a core element of our free-market economy. In setting prices, companies usually are not free to charge whatever prices they wish. Many laws govern the rules of fair play in pricing. • The Monopolies and Restrictive Trade Practices (MRTP) Act, 1969 • The Competition Act, 2002
- 31. Public Policy and Pricing Salient features of the Competition Act: • anti-competitive agreements • prohibition of abuse of dominant positions by an enterprise • regulation of combinations such as acquisitions, mergers, joint ventures, takeovers, and amalgamations
- 32. Public Policy and Pricing • Under the MRTP Act, acts such as misleading consumers about the prices at which goods and services are available in the market and false offers of bargain prices are considered to be unfair trade practices • The Consumer Protection Act, 1986 (amended in 2002), also safeguards the interests of consumers
- 33. Public Policy and Pricing Predatory pricing, or selling and providing services with the intention of reducing competition or eliminating competitors, is not permissible under the MRTP Act or the Competition Act.
- 34. Public Policy and Pricing With advancements in technology, additional concerns, such as scanner fraud, are on the rise.