CHAPTER 15
STRATEGIC PRICING
METHODS
15-1
Strategic Pricing Methods
LEARNING OBJECTIVES
LO1
Identify three methods that firms use to set their
prices.
LO2
Describe the difference between an everyday low
price strategy (EDLP) and a high/low strategy.
LO3
Explain the difference between a price skimming and
a market penetration pricing strategy.
LO4
Identify tactics used to reduce prices to consumers.
LO5
Identify tactics used to reduce prices to businesses.
LO6
List pricing practices that have the potential to
deceive customers.
15-2
Pricing Strategies
ValueBased
Competitor-Based
Cost-Based
15-3
Cost-Based Methods
•
Cost-base pricing
methods start with
cost
•
All costs calculated
on a per unit basis
•
Assumes costs don’t
vary for different
levels of production
Ryan McVay/Getty Images
15-4
Competition-Based Methods
 Set prices to signal
information of how
product compares
with competitors
 Premium pricing
AP Photo/Matthias Rietschel
Zillow
15-5
Value-Based Methods
 Setting prices that focus
on the overall value of
the product
 Consumer perceptions
Funny Commercial:
Beauty is Nothing without Brains
Courtesy Rolex USA
15-6
CHECK YOURSELF
1. What are the three different strategies for
setting pricing?
2. How can you use value-based strategies for
setting prices?
15-7
Pricing Strategies
Everyday
low
pricing
(EDLP)
High/Low
Pricing
15-8
Everyday Low Pricing vs..
High/Low Pricing
Create value in different ways
EDLP saves search costs of finding lowest overall prices
High/low provides the thrill of the chase for the lowest price
High/low pricing
Everyday low pricing (EDLP)
vs..
Photodisc Collection/Getty Images
©Lars A Niki
15-9
Consumers’ Use of Reference Prices
Internal
reference
price
External
reference
price
Photodisc Collection/Getty Images
15-10
New Product Pricing Strategies
Market Penetration Pricing
Price skimming
Courtesy Ford Motor Company.
15-11
CHECK YOURSELF
1. Explain the difference between EDLP and
high/low pricing.
2. What pricing strategies should be considered
when introducing a new product?
15-12
Pricing Tactics Aimed at Consumers
Mark
downs
Leader
Pricing
Quantity
Discounts
Price
Bundling
Seasonal
Discounts
Leasing
Coupons
Rebates
15-13
Business Pricing Tactics and Discounts
Seasonal
discounts
Cash
discounts
Quantity
discounts
Vendor
Allowances
Uniform
delivered vs.
Zone pricing
15-14
CHECK YOURSELF
1. What are some consumer-oriented pricing
tactics?
2. What are some B2B-oriented pricing tactics?
15-15
Legal Aspects and Ethics of Pricing
Deceptive or
illegal price
advertising
Predatory
pricing
Legal Aspects and
Ethics of Pricing
Price
discrimination
Price
fixing
15-16
CHECK YOURSELF
1. What common pricing practices are considered
to be illegal or unethical?
15-17