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Marketing... Product / Price / Promotion / Place 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 • • • • • 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 • • • • • 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 • • • • • 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 • • • • • 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 • • • • • 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…