Pricing Strategies
After deciding whether to use a cost-oriented,
demand-oriented, or a competition-oriented
policy, your company will develop a pricing
strategy.
Pricing Strategies
•
•
•
•
•
•
•
Price lining
Bundle pricing
Geographical pricing
Psychological pricing
Prestige pricing
Everyday low pricing (ELDP)
Promotional Pricing
Price Lining
• A store might charge $25, $35, and $50 for
blouses to establish low, middle and high
quality items.
• Price differences must be great enough to
represent different qualities.
Product Mix Strategies
• Optional Products – Setting prices for
accessories or options (example: cars)
• Captive Products – Set price for a product
low, but make supplies needed to run that
product, high (example: printers)
• By-product – Setting prices low for waste
(example: Wood chips)
Bundle Pricing
• Offering several complementary products in
a package that is sold at a single price that is
lower than the cost of buying each item
separately
• Advantage: Businesses can sell items that
they may not have sold otherwise which
increases sales and revenue
Geographical pricing
• Adjusting the price of an item because of the
location of the customer
• Delivered price includes delivery charges
• International pricing
–
–
–
–
–
Economic conditions
Exchange rate
Shipping
Tariffs
Consumers’ income levels and lifestyles
Psychological Pricing
•
•
•
•
Odd-even
Prestige
Multiple Unit
Everyday low price
Odd-even
• Odd numbers convey a bargain
– $19.99, $9.95, $.99
• Even numbers convey quality
– $10, $50, $50.00
Prestige Pricing
• Set a higher than average price to suggest
status and high quality
Multiple-Unit
• Pricing items in multiples suggests a
bargain
• Like 3 for $1.00, instead of $.34 each
ELDP (everyday low price)
• Consistent low prices
• Will not raise or lower price in the future
• Not as deeply discounted as promotional
pricing
• Advantages
– Creates stability
– Reduced promotional expenses
– Reduced losses due to discounting
Promotional Pricing
•
•
•
•
Loss Leader
Special event
Rebates
Coupons
Loss Leader
• Below cost prices
• Used to increase traffic
• Used to increase sales in other products
Special Event
• Items reduced in price for a short time
based on a specific happening
• Manufacturers offer special promotions to
retailers that are willing to advertise or
promote a manufacturer’s products
Rebates
• Partial refunds from the manufacturer
• Consumers need proof of purchase and
store receipt
• What is their hope?
• Manufacturers also offer rebates to retailers
and wholesalers
– If you purchase a certain amount of goods prior
to running a promotion
Coupons
• Allow customers to take reductions at the
time of purchase
• Found where?
• Hopefully, consumer will buy product just
because they have a coupon.
Discounts and Allowances
•
•
•
•
•
Cash discounts
Quantity discounts
Trade discounts
Seasonal discounts
Special allowances
Cash Discounts
• Offered to encourage quick payment
• 2/10, n/30
Quantity Discounts
• Place a large order, get a discount
• Non-cumulative offered per order (the more you
buy, the larger the discount)
• Cumulative offered over a specified period of time
(6 months) OR
• Buyers might sign a contract agreeing to buy a
certain amount
– Example: Advertisers who agree to use a certain
amount of newspaper columns might be charged
cheaper rates
Seasonal Discounts
• Discount for buying out of season
• Manufacturers use to obtain orders
• Retailers use to reduce cost of storage
Allowances
• Go directly to the buyer
• Offered a price reduction to sell back an old
model
Trade Discounts
• Not really discounts at all
• Prices quoted to retailers and wholesalers
• Percentage discount from list price or
manufacturer’s suggested retail price
Set Prices
• Based on all the information in the first five
steps of price setting, a company sets a price
for its product.