Developing Pricing strategies and programs : Part 3

The only element of the marketing mix that produces revenue!

The other elements

produce costs. It is also the

easiest to adjust!

Internet especially

has had a profound

impact on buyers

and sellers!

Changing pricing environment:

Easy access to credit,

enticing market campaigns,

progressive technology

Buyers can

Get instant price comparisons from a slew of vendors

Name their price and have it met (Priceline.com)

Get free products (eg: free software products)

Monitor customer behaviour and tailor offers accordingly

Give certain customers access to special prices

Negotiate prices in online auctions and in person

Sellers can

Developing appropriate

pricing strategies and

programs is

extremely important!!

How should a company adapt prices to meet varying circumstances

and opportunities?

Firms usually do not set a single price. They develop

a pricing structure instead.

Pricing structure reflects

Geography

And other similar features

Purchase timing

Market segment requirement

4 Price adaptation strategies

Geographical Pricing

Different prices in different locations.

Should the firm charge higher prices to distant customers to cover higher shipping costs or a lower price to win additional business? How should a firm account for different exchange rates and currencies?

Price discounts and allowances

For early payment, volume purchases and off

season buying.

Must do this carefully or profits might turn out to

be lower than what was expected.

Promotional pricing Pricing techniques to stimulate

early purchase.

Special event pricing Special customer pricing

Cash rebates: helps clear inventories without cutting

down on list price

Longer payment terms

Warrantees and service contracts

Psychological discounting: setting an artificially high

price and then offer discounts

Promotional pricing strategy is a zero sum game

If they work, competitors copy

them and their effectiveness is lost

If they don’t work, they are a waste of money which could have been used for

other purposes.

Differentiated Pricing: Firm sells its products at two or more prices that

do not reflect a proportional difference

in costs

First degree price discrimination:

Good sold at the maximum price each buyer is willing to

pay.

Second degree price discrimination:

Price varies according to quantity demanded by

the customer

Third Degree Price discrimination: Different prices to different

consumer groups. Eg: Location pricing, time pricing,

image pricing etc

Is Price discrimination legal?

If the seller can prove costs incurred

are different for different buyers,

then price discrimination is

legal.

Predatory pricing is illegal. That is selling below cost with the

intention of destroying competition

Recap

Promotional Pricing

Thank you!