Introduction to Pricing
Decisions: Part 2
Product Mix Pricing Strategies
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Product line pricing
Optional-product pricing
Captive-product pricing
By-product pricing
Product bundle pricing
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Product-Line Pricing
• Involves setting price steps between various products
in a product line based on
• Cost differences between products
• Customer evaluations of different features
• Competitors’ prices
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Optional- and Captive-Product
Pricing
• Optional-Product
• Pricing optional or accessory products sold with the
main product (e.g., ice maker with the refrigerator)
• Captive-Product
• Pricing products that must be used with the main
product (e.g., replacement cartridges for Gillette razors)
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By-Product and Product Bundle
Pricing Strategies
• By-Product Pricing
• Pricing low-value by-products to get rid of them (e.g.,
animal manure from zoo)
• Product Bundle Pricing
• Pricing bundles of products sold together (software,
monitor, PC, and printer)
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Price Adjustment Strategies
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Discount and allowance pricing
Segmented pricing
Psychological pricing
Promotional pricing
Dynamic pricing
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Discounts and Allowances
• Discounts
• Cash
• Quantity
• Seasonal
• Allowances
• Trade-in
• Promotional (for retailer)
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Segmented Pricing
• Selling product or service at two or more prices,
where price difference not based on cost
difference
• Called yield-management in hospitality industry
• Types
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Customer-segment
Product-form
Location pricing
Time pricing
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Psychological Pricing
• Considers psychology of prices and not simply
economics
• Consumers usually perceive higher-priced
products as having higher quality
• Consumers use price less when they can judge
product quality by examining it or recalling
experiences
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Promotional Pricing
• Low-Interest Financing • Cash Rebates
• Longer Warranties
• Special-Event Pricing
• Free Maintenance
• Loss Leaders
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Dynamic Pricing
Adjusting prices continually to meet characteristics
and needs of individual customers and situations
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Initiating Price Changes
• Price Cuts
• Excess capacity
• Falling market share
• Dominate market through lower costs
• Price Increases
• Cost inflation
• Over-demand
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Responses to Price Changes
• Buyer reactions to price changes
• Competitor reactions to price changes
• Firm responses to price drop by competitor
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Reduce price to match competition
Raise perceived quality of its offer
Improve quality and increase price
Launch a low-price “fighting brand”
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Public Policy and Pricing
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Price fixing
Predatory pricing
Price discrimination
Retail price maintenance
Deceptive pricing
• Promotion price reductions
• Scanner fraud
• Price confusion
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Recap—What was Covered?
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Importance of understanding customer value
perceptions and company costs when setting
prices
Important internal and external factors affecting a
firm’s pricing decisions
The major strategies for pricing imitative and new
products
How companies find a set of prices that
maximizes the profits from the total product mix
How companies adjust their prices to account for
different types of customers and situations
Issues related to initiating and responding to price
changes
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