Download Pricing Strategy 1

CHAPTER 19 Pricing Strategies
PRICING STRATEGIES
• Specific pricing strategies grow out of the overall
marketing strategy.
SKIMMING PRICING STRATEGY
• Skimming pricing strategy Pricing strategy involving the
use of a high price relative to competitive offerings.
• Also known as market-plus pricing.
• Commonly used as a market entry price for distinctive
goods or services with little or no initial competition.
• Example: When introduced, average price of HDTV with
installation was $19,000.
• Sometimes used throughout the life of the product, as with luxury goods.
• Permits marketers to control demand but also attracts competitors.
CHAPTER 19 Pricing Strategies
• Price declines can help marketers capture greater market share during late
growth and early maturity stages.
CHAPTER 19 Pricing Strategies
PENETRATION PRICING STRATEGY
• Penetration pricing strategy Pricing strategy involving the use of a
relatively low entry price compared with competitive offerings, based on the
theory that this initial low price will help market acceptance.
• Sometimes called market-minus pricing.
• Price level may increase to match competitors once product has
recognition in the market.
• Common among credit card firms, which offer low introductory rates
which they later raise.
• Competition may lower prices to counter this strategy.
• Works best for goods and services that have:
• Highly elastic demand.
• Low production and marketing costs.
• A high likelihood of attracting strong competitors.
CHAPTER 19 Pricing Strategies
Everyday Low Pricing
• Strategy devoted to continuous low prices as opposed to relying
on short-term, price-cutting tactics such as cents-off coupons,
rebates, and special sales.
• Used by retailers selling to consumers and by manufacturers
in dealing with channel members.
• Some retailers, such as grocery stores, oppose EDLP strategies.
• Prefer high-low strategy that set profitable regular
prices to offset losses from frequent sales and promotions.
• Disadvantages or EDLP:
• Easy for competitors to match.
• Unless demand is elastic, reduces revenue throughout industry.
• May generate image of questionable quality.
CHAPTER 19 Pricing Strategies
COMPETITIVE PRICING STRATEGY
• Competitive pricing strategy Pricing strategy designed to deemphasize
price as a competitive variable by pricing a good or service at the general
level of comparable offerings.
• Example: Home Depot and Lowe’s both promise to meet and beat
competitors’ prices.
• May use opening price point by, for example, pricing a quality privatelabel product below the competition.
• Prices can drop when competitors continually match each other.
• If demand is not elastic, overall revenue of industry will drop.
• Nearly two-thirds of all firms use competitive pricing as their primary
pricing strategy.
• Forces firms to compete based on nonprice variable in the marketing mix.
CHAPTER 19 Pricing Strategies
PRICE QUOTATIONS
• List price Established price normally quoted to potential buyers.
CHAPTER 19 Pricing Strategies
PRICE-QUALITY RELATIONSHIPS
• Price affects consumer perception of quality.
• Customers often associate prestige with high prices.
• Some companies work to promote image of high-quality
products at low prices.
• Consumers have maximum and minimum price limits.
CHAPTER 19 Pricing Strategies
GLOBAL CONSIDERATIONS AND
ONLINE PRICING
• Every online marketer is a global marketer.
• Internal and external considerations guide pricing.
TRADITIONAL GLOBAL PRICING STRATEGIES
• Standard worldwide pricing—can succeed if foreign marketing costs
remain low or if their prices reflect average unit costs.
• Dual pricing—distinguishing prices for domestic and export sales.
• Fully allocate foreign and domestic costs to product sales.
• Market-differentiated pricing—setting prices according to local market
conditions.
CHAPTER 19 Pricing Strategies
CHARACTERISTICS OF ONLINE PRICING
• Some firms offer online specials that do not appear in catalogs or stores.
The Cannibalization Dilemma
• Cannibalization Loss of sales of an existing product due to competition
from a new product in the same line.
• Marketers are becoming increasingly savvy about integrating the different
marketing channels.
• Example: Wal-Mart recently introduced such features as “Ship to
Store” and “Find It in a Store” to its Web site.
Use of Shopbots
• Search programs that act as comparison shopping agents; also called bots.
• Force online marketers to keep prices low.
CHAPTER 19 Pricing Strategies
BUNDLE PRICING
• Bundle pricing Offering two or more complementary products and selling
them for a single price.
• Prevalent in the communications industry.
• Example: AT&T offers packages that include broadband service,
e-mail accounts, and rebates on wireless products.
• Consumers may resist of they think they are being forced to pay for
products they don’t want.
• Example: Cable television industry, which resists selling channels
individually.
CHAPTER 19 Pricing Strategies
VIDEO
Watch Chevrolet Video
Watch Saturn Video
• Various pricing strategies are evident in the ads for Saturn and
Chevy’s new Aveo. Are the strategies matched well with what
you think is the target market for each product? What price
strategy has each company selected? How are the prices being
fine-tuned?
CHAPTER 19 Pricing Strategies
VIDEO
Watch RadioShack Video
• Watch the ad for RadioShack to see how it utilizes
discounts/rebates to sell its cell phones.