Pricing Strategies

1
Pricing Strategies

• After deciding whether to use a cost-oriented,
  demand-oriented, or a competition-oriented
  policy, your company will develop a pricing
  strategy.

2
Pricing Strategies

• Price lining
• Bundle pricing
• Geographical pricing
• Psychological pricing
• Prestige pricing
• Everyday low pricing (ELDP)
• Promotional Pricing

3
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.

4
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)

5
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

6
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

7
Psychological Pricing

• Odd-even
• Prestige
• Multiple Unit
• Everyday low price

8
Odd-even

• Odd numbers convey a bargain
• 19.99, 9.95, .99
• Even numbers convey quality
• 10, 50, 50.00

9
Prestige Pricing

• Set a higher than average price to suggest status
  and high quality

10
Multiple-Unit

• Pricing items in multiples suggests a bargain
• Like 3 for 1.00, instead of .34 each

11
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

12
Promotional Pricing

• Loss Leader
• Special event
• Rebates
• Coupons

13
Loss Leader

• Below cost prices
• Used to increase traffic
• Used to increase sales in other products

14
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 manufacturers products

15
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

16
Coupons

• Allow customers to take reductions at the time of
  purchase
• Found where?
• Hopefully, consumer will buy product just because
  they have a coupon.

17
Discounts and Allowances

• Cash discounts
• Quantity discounts
• Trade discounts
• Seasonal discounts
• Special allowances

18
Cash Discounts

• Offered to encourage quick payment
• 2/10, n/30

19
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

20
Seasonal Discounts

• Discount for buying out of season
• Manufacturers use to obtain orders
• Retailers use to reduce cost of storage

21
Allowances

• Go directly to the buyer
• Offered a price reduction to sell back an old
  model

22
Trade Discounts

• Not really discounts at all
• Prices quoted to retailers and wholesalers
• Percentage discount from list price or
  manufacturers suggested retail price

23
Set Prices

• Based on all the information in the first five
  steps of price setting, a company sets a price
  for its product.