Pricing Strategies
Pricing Strategies
• Over the last couple periods we have come to
the conclusion that:
– Marketers must consult with production in order
to set a minimum price for the product
– The minimum price needs to ensure that the
company is making as much money
as they are spending
• Break-Even Analysis
Pricing Strategies
• Once businesses know the minimum price
they can charge they will develop a pricing
strategy
– A plan to price a product to achieve specific
marketing objective
• There are 3 main Pricing Strategies
1. Market Skimming
2. Penetration Pricing
3. Competitive Pricing
Market Skimming
• A strategy used when a product or service is first
introduced to the market
• Initially set the price high before competitors
enter the market
– Companies try to recover their R &D
costs as soon as possible
– No competition will mean
that consumers will be
willing to pay a higher price
to first have their hands on
the product
Market Skimming
• Think of market skimming like a pool boy
skims a pool
– The entire market is the swimming pool
– The business wants to get as much off the top of
the pool as possible
• As soon as break-even
point is made – companies
can lower the price
Market Skimming
• Competitors will come in and “low-ball” the
business that entered the market first
– This is the major flaw of skimming
• Skimming can be used to:
– Create a Buzz
– Manage Demand until
production increased
– Attracts a high income target
• Apple uses this strategy with the majority of their
new products
Penetration Pricing
• Marketers will set a price very low in order to
attract customers away from the competition
• Example: If Lovett Cola were to enter the
market selling cans of cola for
75 cents per can.
– People see the price – figure the
cola tastes similar to Coke or Pepsi
and buy Lovett Cola
Penetration Pricing
• The goal of this strategy:
– To make a large number of sales at the low price
in order to recoup the costs
– To Build a Customer Base
• Can only be done if the variable costs are low
Competitive Pricing
• The most popular pricing strategy
• Follow the leader pricing
– The strategy is to position your price around the
level that your competition is priced, called the
benchmark price
• Example: Future Shop --- Price Matching
• The amount of sales is dependent
on advertising, distribution & other
promotions
Pricing Strategies
• The previous slides were large pricing
strategies that are used by companies that are
entering the market
• The following slides will discuss pricing
strategies that can be used and changed on a
more continuous basis when
products/services are mature
Pricing Strategies
• Leader Pricing
– Companies set low prices on a few items to draw
customers and have them buy all products
• Price Lining
– In this policy, identically priced items are grouped
together in a store so that high markup items are
grouped with lower ones
– Example: The $20 rack at a retail clothing store is
composed of jeans, t-shirts, pants, etc.
Pricing Strategies
• Everyday Low Prices
– Here a company will guarantee that their price is the
lowest, and hence don’t need to advertise
– Example: Walmart
• Super Sizing
– Consumers receive a larger portion of
an item by paying a slightly higher price
– This allows companies to increase the
profit on a sale significantly
• Negotiated Pricing
– Here the buyer and seller decide on the price (houses are
the obvious example)
– Can result in a lower price for the consumer
Pricing Strategies
• Interest-Free Pricing
– Customers are offered the chance to take the product for a
year and pay no interest
– Furniture stores often use this pricing strategy
• Combo Pricing
– Consumers are offered a lower price in one item if they
purchase another item (which usually has a high markup)
– Also called bundling (ex. Rogers)
• Psychological Pricing
– Prices are made more attractive to consumers (example
$9.99 instead of $10)
– Thinking about what a certain price will “say” about a
product or service
Pricing Strategy
• Purchase Discounts
– Volume discounts are an example (buy 2 get 1
free)
– Often used to move product
– In these cases profits are often due to savings in
distribution, packaging, etc.
Pricing Strategies Open PowerPoint
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