Pricing

Strategies

Chapter 11
 Definitions

Market-Skimming Pricing
 Setting a high price
for a new product to
skim maximum
revenues layer by
layer from segments
willing to pay the
high price.

11- 2
 Definitions

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.

11- 3
 Product Mix
Pricing Strategies

Product Line Pricing

 Setting price steps between
product line items.
 Price points

11- 4
 Product Mix
Pricing Strategies

Optional-Product Pricing
 Pricing optional or
accessory products sold
with the main product
 Supplemental software,
digital cameras, and
printers sold with a new
PC are examples

11- 5
 Product Mix
Pricing Strategies

Captive-Product Pricing
 Pricing products that must
be used with the main
product
 High margins are often
set for supplies
 Services: two-part pricing
strategy
 Fixed fee plus a
variable usage rate

11- 6
 Product Mix
Pricing Strategies

By-Product
Pricing
 Pricing of
low-value
by-products
to get rid of
them

11- 7
 Product Mix
Pricing Strategies

Product Bundle
Pricing
 Pricing bundles of
products sold
together
 Common in fast
food industry

11- 8
Price Adjustment Strategies

Strategies Types of discounts

 Cash discount
Discount /  Quantity discount
 Functional (trade)
allowance
discount
Segmented  Seasonal discount
Psychological Allowances
Promotional  Trade-in allowances
 Promotional
Geographical allowances
International
11- 9
Price Adjustment Strategies

Strategies Types of segmented

pricing strategies:
 Customer-segment
Discount /  Product-form pricing
allowance  Location pricing
 Time pricing
Segmented Also called revenue or
Psychological yield management
Certain conditions
Promotional must exist for
Geographical segmented pricing to
be effective
International
11- 10
Price Adjustment Strategies

Strategies The price is used to say

something about the
product.
Discount /  Price-quality relationship
 Reference prices
allowance  Differences as small as five
Segmented cents can be important
 Numeric digits may have
Psychological symbolic and visual qualities
that psychologically influence
Promotional the buyer

Geographical
International
11- 11
Price Adjustment Strategies

Strategies Temporarily pricing

products below the list
price or even below
Discount / cost
allowance Loss leaders
 Special-event pricing
Segmented  Cash rebates
Psychological  Low-interest financing,
longer warranties, free
Promotional maintenance

Geographical Promotional pricing

can have adverse
International effects
11- 12
Price Adjustment Strategies

Strategies Types of geographic

pricing strategies:
Discount /  FOB-origin pricing
 Uniform-delivered
allowance
pricing
Segmented  Zone pricing
Psychological  Basing-point pricing
Promotional  Freight-absorption
pricing
Geographical
International
11- 13
Price Adjustment Strategies

Strategies Prices charged in a

specific country
depend on many
Discount / factors
allowance  Economic conditions
Segmented  Competitive situation
 Laws / regulations
Psychological  Distribution system
Promotional  Consumer perceptions
 Cost considerations
Geographical
International
11- 14