Download Objective 3.03 Employ Pricing Strategies to Determine Prices

Part III – Pricing New Products
Objectives:
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a. Identify strategies for pricing new
products.
b. Select product-mix pricing strategies.
c. Determine discounts and allowances
that can be used to adjust base prices.
d. Adjust base prices using psychological
pricing techniques.
e. Select promotional pricing strategies.
f. Select geographic pricing strategies to
adjust base prices.
g. Identify segmented pricing strategies.
h. Demonstrate procedures for selecting
appropriate pricing strategies for
products.
New product Pricing Strategies
Penetration pricing in the introductory
stage of a new product's life cycle
involves accepting a lower profit margin
and pricing relatively low.
 Price skimming involves setting the price
relatively high to generate a high profit
margin.
 A premium product generally supports a
skimming strategy.
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Product Mix Pricing Strategies
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The product mix is the collection of
products and services that a company
chooses to offer its market. Pricing
strategies range from being the cost
leader to being a high-value, luxury
option for consumers.
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Cost Plus
Cost-plus pricing is the most basic type of pricing
and simply represents setting the cost of a product
at some level above the cost of producing and
distributing that product. So, for instance, a jeweler
might decide to price products at a 100 percent
mark-up based on the costs that go into creating the
product.
Competition Based
Competition-based pricing is pricing that is
established specifically to address and respond to
the prices of competitors' products. Businesses may
decide to price either higher or lower or at about the
same levels of the competition, but their decisions
are based on an evaluation of what competitors are
doing and how they want to position their product
mix.
Discounts and Allowances
Clearance Markdowns to get rid of slowmoving, obsolete merchandise
 Promotional Markdowns
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 To increase sales and promote merchandise
 To Increase traffic flow and sale of
complementary products generate
excitement through a sale
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To generate cash to buy additional
merchandise
There are five basic types of
psychological pricing strategies.
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1. Odd-even pricing is a strategy of
setting prices in odd numbers just below
an even price, for example pricing an
item at the odd $19.95 rather than the
even price of $20.00. The intention of
odd-even pricing is to make the price
appear considerably lower than it is.
Pricing Strategies Cont.
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2. Prestige pricing works on the opposite
premise; rather than making prices
seem low, prices are inflated in order to
create a sense of greater value. For
example, a wine might be priced at $20
per bottle rather than $12 merely to give
the impression that it is a better product.
Pricing Strategies Cont.
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3. Multiple pricing is a psychological
pricing strategy in which items are
bundled together, such as two for $5
rather than $2.50 per item. This strategy
creates a sense of value and can help
boost sales volume by encouraging the
purchase of multiple items.
Pricing Strategies Cont.
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4. Promotional pricing is the
psychological pricing strategy in which a
price is temporarily lowered in order to
attract customers.
Pricing Strategies Cont.
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5. Price lining is an effective form of
psychological pricing for companies with
an extensive product line; it involves
creating a price range for a particular
line, for example a budget clothing line
with items all priced below $10.
Geographical Pricing.
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Geographical pricing sees variations in
price in different parts of the world. For
example rarity value, or where shipping
costs increase price. In some countries
there is more tax on certain types of
product which makes them more or less
expensive, or legislation which limits
how many products might be imported
again raising price.
Segmentation Pricing
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If you plan a product segmentation
strategy, you may incur higher product
development or manufacturing costs to
create different versions, so it is important
to focus on segments where you can make
a profit. Price segmentation enables you to
offer the same basic product, but add
features that customers are willing to pay
for or remove cost elements that are not
important to customers.