Pricing Strategies

Chapter 26

Cost-Oriented Pricing

Markup Pricing – difference between cost and price

Cost-Plus Pricing – costs and expenses, plus desired profit

Demand-Oriented Pricing

Consumer’s perceived value Number of substitutes available Brand loyalty Minor differences – tickets, fridge

colors

Competition-Oriented Pricing

Price Above Price Below Price In Line with Competition Ignore Cost and Demand Competitive-Bid Pricing

Combining Pricing Considerations

Cost-Oriented determines the price floor

Demand-Oriented determines range Competition-Oriented determines

relative position Product to product considerations

Pricing Policies

One-Price Policy – all customers are charged the same price

Flexible-Price Policy – customers pay different prices for the same type or amount of merchandise

Bargaining takes place with cars, antiques, furniture, and jewelry

Internet sites – name your price

New Product Introduction

Skimming Pricing – high price when demand is greater than supply

Penetration Pricing – lower price to gain market share

Psychological Pricing

Techniques that create an illusion for customers or that make shopping easier for them

Odd-Even Pricing

Setting prices that all end in either odd or even numbers

Odd numbers convey a bargain ($9.99, $79, $845.67)

Even numbers convey a quality image ($100, $20, $50)

Prestige Pricing

Higher-than-average prices suggest status and prestige

Many assume higher price equals higher quality

Multiple-Unit Pricing

Suggests a bargain and helps to increase sales volume

3 for $99

The 1 for $2, 2 for $3, 3 for $5 dilemma

Bundle Pricing

Several complementary products in a package sold at a single price

Help to sell items that may not have sold on their own

Promotional Pricing

Loss leader Special event Rebates

Everyday Low Prices

Low prices that are set on a consistent basis with no intention of raising them or offering discounts in the future

Sales stability Wal-Mart is famous for this

Price Lining

All items in a certain category are set at the same price. $25, $35, and $50.

Make the price differences large enough to differentiate

Allows sales people to easily offer a more expensive (more profitable) alternative

Discount Pricing Cash Discounts – incentives to pay

the bill early (2/10, net 30) Quantity Discounts – lower price for

larger quantity Trade Discounts – prices to

wholesalers versus retailers Seasonal Discounts – price change

based on time of year (Christmas lights, mower)