Pricing Strategies
1
Money Charged for a Product
or Service
Generates Revenue
Easy to Change
2
Many Names
3
Pricing Strategies
Quality
Low
Low
Economy
Pricing
High
Skimming
pricing
High
Penetration
Pricing
Price
Premium
Pricing
Market Skimming
Applies to new, distinctive products
5
Market Skimming
• Most consumer
based electronic
products
• The iPhone3 was
priced $899 in
2007. Now ?
6
Penetration Pricing
Applies to large markets with elastic demand,
economies of scale, intense competition
7
Captive
Product
Pricing
8
Economy Pricing
9
Premium Pricing
10
Two Pricing Mistakes
Reducing Price Too Soon
Pricing based on Cost
instead of Customer Value
11
Price Adjustment Strategies
Strategies
•
•
•
•
•
Discount / allowance
Segmented
Psychological
Promotional
International
• Types of discounts
– Cash discount
– Quantity discount
– Seasonal discount
• Allowances
– Trade-in allowances
– Promotional allowances
12
Quantity Discounts in Public Transport
13
Seasonal
Discounts
14
Trade--In
Trade
15
(Pure) Bundling
16
(Mixed) Bundling
17
Price Adjustment Strategies
Strategies
•
•
•
•
•
Discount / allowance
Segmented
Psychological
Promotional
International
• 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
18
Pricing a ProductProduct-Line
19
Location
Pricing
20
Time Pricing
21
Pricing
conditions
22
Segmented Pricing Effectiveness
–
–
–
–
Market must be “segmentable”
Segments must show different demand
Pricing must be legal
Costs of segmentation cannot exceed
revenues earned
– Segmented pricing must reflect real
differences in customers’ perceived value
23
Price Adjustment Strategies
Strategies
•
•
•
•
•
Discount / allowance
Segmented
Psychological
Promotional
International
• 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
24
Psychological
pricing
25
Psychological Pricing
This ad for a luxury
priced car attempts to
show that Mercedes
owners form important
relationships with their
cars
26
Price Adjustment Strategies
Strategies
•
•
•
•
•
Discount / allowance
Segmented
Psychological
Promotional
International
• Temporarily pricing
products below the list price
or even below cost
– Contracts, Special-event
pricing
– Cash rebates
– Low-interest financing,
warranties
– Loss leaders
27
Contract pricing
28
Cash back
29
30
Loss Leader
Sold at (or below) cost
Frequently purchased product
Inconveniently Located
Perishable
31
Promotional Pricing - Challenges
– Easily copied by competitors
– Creates deal-prone
consumers
– Erode brand value
– Industry Price Wars
32
Price Adjustment Strategies
•
•
•
•
•
• Prices charged in a specific country
depend on many factors
Strategies
– Economic conditions
– Competitive situation
Discount / allowance
Segmented
– Laws / regulations
Psychological
– Distribution system
Promotional
– Consumer perceptions
International
– Corporate marketing objectives
– Cost considerations
33
AUS
USA
34
Price Transparency
35
Competition-based Pricing
36