Chapter 12
advertisement
Pricing Strategies Chapter 12 Definitions • Market Market--Skimming Pricing Setting S tti a high hi h price i ffor a new product d t tto skim maximum revenues layer by layer from segments willing to pay the high price. • Market Market--Penetration Pricing Setting a low price for a new product in order to attract a large number of buyers and a large market share. 12 - 1 Product Mix Pricing Strategies • Product Line Pricing Setting price steps between product line items. items Price points • OptionalO ti Optional l-Product P d t Pricing Pi i Pricing optional or accessory products sold ld with ith th the main i product d t 12 - 2 Product Mix Pricing Strategies • Captive Captive--Product Pricing Pricing products that must be used with the main product High margins are often set for supplies Services: twotwo-part pricing strategy Fixed fee p plus a variable usage g rate 12 - 3 Product Mix Pricing Strategies • By By--Product Pricing Pricing low low--value by by--products to get rid of them • Product Bundle Pricing Pricing bundles of products sold together 12 - 4 Price Adjustment Strategies Strategies • • • • • • Discount / allowance Segmented Psychological Promotional Geographical International • Types of discounts Cash discount Quantity discount Functional (trade) discount Seasonal discount • Allowances Trade Trade--in allowances Promotional allowances 12 - 5 Price Adjustment Strategies Strategies • • • • • • Discount / allowance Segmented Psychological Promotional Geographical International • Types of segmented pricing i i strategies: t t i Customer-segment CustomerProduct--form pricing Product Location pricing Time pricing • Also called revenue or yield management • Certain conditions must exist for segmented pricing to be effective 12 - 6 Price Adjustment j Strategies Conditions Necessary y for Segmented Pricing Effectiveness • Market is segmentable • Lower priced segments are not able to resell • Competitors can not undersell segments charging higher • Pricing m must st be legal • Costs of segmentation can not exceed revenues earned • Segmented pricing must reflect real differences in customers’’ perceived value customers 12 - 7 Price Adjustment Strategies Strategies • • • • • • Discount / allowance Segmented Psychological Promotional Geographical International • The price is used to say something thi about b t th the product. PricePrice-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 12 - 8 Price Adjustment Strategies Strategies • • • • • • Discount / allowance Segmented Psychological Promotional Geographical International • Temporarily pricing products d t below b l th the lilistt price or even below cost • Loss leaders SpecialSpecial-event pricing Cash rebates Low Low--interest financing financing, longer warranties, free maintenance • Promotional pricing can have adverse effects 12 - 9 Price Adjustment j Strategies Promotional Pricing Problems • Easily Easil copied b by competitors • Creates dealdeal-prone consumers • May erode brand’ brand’s value • Not a legitimate substitute s bstit te for effective strategic planning • Frequent use leads to industry price wars which benefit few firms 12 - 10 Price Adjustment Strategies Strategies • • • • • • Discount / allowance Segmented Psychological Promotional Geographical International • Types y of geographic g g pricing strategies: FOBFOB-origin pricing Uniform Uniform--delivered pricing Zone pricing Basing Basing--point pricing Freight Freight--absorption pricing 12 - 11 Price Adjustment Strategies Strategies • • • • • • Discount / allowance Segmented Psychological Promotional Geographical International • Prices charged in a specific country depend on many factors Economic conditions Competitive situation Laws / regulations Di t ib ti system Distribution t Consumer perceptions Cost considerations 12 - 12 Price Changes • Initiating g Price Cuts is Desirable When a Firm: Has excess capacity Faces falling market share due to price i competition titi Desires to be a market share leader 12 - 13 Price Changes • Price Increases are Desirable: If a firm can increase profit, faces cost inflation, or faces greater demand than can be supplied supplied. • Methods of Increasing Price • Alternatives to Increasing Price Reducing product size, using less expensive i materials, t i l unbundling b dli th the product. 12 - 14 Price Changes • Buyer reactions to price changes must be considered. considered • Competitors are more likely to react to price changes under certain conditions. Number of firms is small Product is uniform Buyers are well informed 12 - 15 Price Changes • Respond p To Price Changes g Only y If: Market share / profits will be negatively affected if nothing is changed. Effective action can be taken: Reducing price Raising perceived quality Improving quality and increasing price Launching lowlow-price “fighting brand” brand” 12 - 16 Public Policy and Pricing • Pricing g within Channel Levels Price Price--fixing Competitors can not work with each other t sett prices to i Predatory pricing Firms may not sell below cost with the intention of punishing a competitor or gaining higher longlong-run profits or running a competitor out of business. business 12 - 17 Public Policy and Pricing • Pricing across Channel Levels Price discrimination Retail price maintenance Deceptive pricing Bogus reference / comparison pricing Scanner fraud Price confusion 12 - 18
