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Pricing Strategies
Quality
Low
High
Low
Economy
Pricing
Market
Penetration
High
Market
Skimming
Premium
Pricing
Price
Pricing Strategies: Market Skimming
Applies to new, distinctive products, early in the Product Life Cycle
Pricing Strategies: Market Skimming
– Common when there is little competition
– Set the price high and reach BEP quickly
– Sometimes used to limit demand if you cannot produce
enough to meet heavy demand
– Initial high price attracts wealthy trendsetters
– Most new consumer electronic products practice this pricing
technique
The iPod was priced $259 in 2004.
The PS3 was priced
$599 in 2007.
Pricing Strategies: Captive Product Pricing
Products that require a “refill”
component can command a
captive price. Examples are
cartridges for razors, water
filters and printers…
Pricing Strategies:
Common Pricing Mistakes…
Pricing Strategies: Economy Pricing
Pricing Strategies: Premium Pricing
Pricing Adjustment Strategies
Strategies
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Discount / allowance
Segmented
Psychological
Promotional
Competitive
• Types of discounts
– Cash discount
– Quantity discount
– Seasonal discount
• Allowances
– Trade-in allowances
– Promotional allowances
Pricing Adjustment Strategies: Discount / allowance
Quantity discount
Cash discount
Pricing Adjustment Strategies: Discount / allowance
Seasonal Discounts
Trade-in
allowances
Pricing Adjustment Strategies
Strategies
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Discount / allowance
Segmented
Psychological
Promotional
Competitive
• Types of segmented pricing
strategies:
– Product-line pricing
– Location pricing
– Time pricing
• Also called revenue or yield
management
• Certain conditions must exist for
segmented pricing to be
effective
Pricing Adjustment Strategies: Segmented
Pricing a Product-Line
Pricing Adjustment Strategies: Segmented
Segmented Pricing Strategies: Time Pricing
Pricing Adjustment Strategies: Segmented
Pricing Adjustment Strategies
Strategies
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Discount / allowance
Segmented
Psychological
Promotional
Competitive
• The price is used to say
something about the product.
– Price-quality relationship
– Reference prices
– Differences as small as five cents
can be important
– Numeric digits may have
symbolic and visual qualities
that psychologically influence
the buyer
Psychological
Pricing
The L.L. Bean
Slipper: $49.95
Psychological pricing occurs when sellers
consider the psychological factors of price.
The price tag on a pair of moccasin UGG
slippers is $100. The price on a pair that
looks almost identical, sold at L.L. Bean is
half that at $49.95. The difference in price is
not due to a drastic difference in quality, both
are made from sheepskin and both have
indoor/outdoor soles, the difference in price
is an example of psychological pricing.
The UGG Slipper: $100
Pricing Adjustment Strategies: Psychological
Pricing Adjustment Strategies: Psychological
Pricing Adjustment Strategies
Strategies
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Discount / allowance
Segmented
Psychological
Promotional
Competitive
• Temporarily pricing
products below the list
price or even below cost
– Contracts, Special-event
pricing
– Cash rebates
– Low-interest financing,
warranties
– Loss leaders
Pricing Adjustment Strategies: Promotional
Pricing Adjustment Strategies: Promotional
Pricing Adjustment Strategies: Promotional
Loss Leader
Good or service
advertised and sold at
below cost price. Its
purpose is to bring
customers in the store
(usually a supermarket) on
the assumption that, once
inside the store,
customers will be
stimulated to buy full
priced items as well.
Pricing Adjustment Strategies: Promotional
Challenges:
–Easily copied by competitors
–Creates deal-prone consumers
–Erode brand value
–Industry Price Wars
Pricing Adjustment Strategies
Strategies
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Discount / allowance
Segmented
Psychological
Promotional
Competitive
• most popular strategy
• products in a specific category
match/follow competitors closely
• companies compete using
something other than price: ads,
promos, distribution, product
features
• manufacturer with largest market
share, first product, or longest on
market sets benchmark price
• others compare their product, set
their price in relation (remember
costs vs benefits = value)
Pricing Adjustment Strategies
Competitive Pricing
- some retailers have a strict competitive price policy and will
meet or beat others’ prices
- some stores hire competitive shoppers who research the
competition to ensure best price
Pricing Adjustment Strategies: Competitive
No Loss Leader => Every Day Low (or Competitive) Pricing
1st Qtr
2nd Qtr
3rd Qtr
4th Qtr
Pie Chart humour…