Lt-17 Price Strategies.ppt

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Lecture 17

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1. New-Product Pricing Strategies

2. Product Mix Pricing Strategies

3. Price Adjustment Strategies

4. Price Changes

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1. New-Product Pricing Strategies

a. Market-skimming pricing

• High initial prices to “skim” revenue layers from the market

Conditions

• Product quality and image must support the price • Buyers must want the product at the price

• Costs of producing the product in small volume should not cancel the advantage of higher prices

• Competitors should not be able to enter the market easily

b. Market- penetration pricing

• setting a low initial price in order to penetrate the market quickly and

deeply to attract a large number of buyers quickly to gain market

share

Conditions

• Price sensitive market

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Product Mix Pricing Strategies

i)

Product line pricing

: takes into account the cost differences

between products in the line, customer evaluation of their features,

and competitors’ prices

ii) Optional-product

pricing

takes into account optional or accessory

products along with the main product

iii) Captive-product pricing

involves products that must be used along

with the main product

iv) Two-part pricing

involves breaking the price into:

• Fixed fee

• Variable usage fee

v) Product bundle pricing

combines several products at a reduced

price

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Adapting the Price

Possible Reasons variations in

• Geographical demand & Cost

• Market-segment requirements,

• purchase timing,

• order levels,

• delivery frequency,

• guarantees,

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Price-Adjustment Strategies

1. Discount and allowance pricing

reduces prices to

reward customer responses such as paying early or

promoting the product

Types of Discounts

• Cash discount

• Quantity discount

• Functional discount

• _{Seasonal discount}

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2. Promotional Pricing

Promotional pricing

is when prices are temporarily

priced below list price or cost to increase demand

• Loss leaders

• Special event pricing

• Cash rebates

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2. Promotional Pricing Tactics

• Loss-leader pricing. Supermarkets and department stores often drop the price on well-known brands to stimulate additional store traffic. This pays if the revenue on the additional sales compensates for the lower margins on the loss-leader items.

Cash rebates. Auto companies and other consumer-goods companies offer cash rebates to encourage purchase of the manufacturers' products within a specified time period. Rebates can help clear inventories without cutting the stated list price.

Special-event pricing. Sellers will establish special prices in certain seasons to draw in more customers.

Low-interest financing. Instead of cutting its price, the company can offer customers low-interest financing. Automakers have even announced no-interest financing to attract customers.

Warranties and service contracts. Companies can promote sales by adding a free or low-cost warranty or service contract.

Longer payment terms. Sellers, especially mortgage banks and auto companies, stretch loans over longer periods and thus lower the monthly payments.

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3. Differentiated Pricing

Price discrimination

occurs when a company sells a product or service at two or more prices that do not reflect a proportional difference in costs.

In first-degree price discrimination, the seller charges a separate price to each customer depending on the intensity of his or her demand.

In second-degree price discrimination, the seller charges less to buyers who buy a larger volume.

In third-degree price discrimination, the seller charges different amounts to different classes of buyers, as in the following cases:

Customer-segment pricing. Different customer groups are charged different prices for the same product or service.

Product-form pricing. Different versions of the product are priced differently but not proportionately to their respective costs

Image pricing. Some companies price the same product at two different levels based on image differences.

Channel pricing. Coca-Cola carries a different price depending on whether it is purchased in a fine restaurant, a fast-food restaurant, or a vending machine

Location pricing. The same product is priced differently at different locations even though the cost of offering at each location is the same

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Special festival

pricing by

Coca-Cola on the

occasion of

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4. Geographical pricing

It is used for customers in different parts

of the country or the world

• FOB-origin pricing

• Uniformed-delivered pricing

• Zone pricing

• Basing-point pricing

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• FOB-origin (free on board) pricing

means that the goods are

delivered to the carrier and the title and responsibility passes to the

customer

• Uniformed-delivered pricing

means the company charges the same

price plus freight to all customers, regardless of location

• Zone pricing

means that the company sets up two or more zones

where customers within a given zone pay a single total price

• Basing-point pricing

means that a seller selects a given city as a

“basing point” and charges all customers the freight cost associated

from that city to the customer location, regardless of the city from which

the goods are actually shipped

• Freight-absorption pricing

means the seller absorbs all or part of the

actual freight charge as an incentive to attract business in competitive

markets

• Dynamic pricing

is when prices are adjusted continually to meet the

characteristics and needs of the individual customer and situations

• International pricing

is when prices are set in a specific country based

on country-specific factors

• Economic conditions, Competitive conditions, Laws and regulations,

Infrastructure, Company marketing, objective

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Price Changes

• Price cuts

• Price

increases

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Price Changes

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Price Changes

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Price Changes

Questions

• Why did the competitor change the price?

• Is the price cut permanent or temporary?

• What is the effect on market share and

profits?

• Will competitors respond?

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Price Changes

Solutions

• Reduce price to match competition

• Maintain price but raise the perceived

value through communications

• Improve quality and increase price

• Launch a lower-price “fighting” brand

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Chapter 11- slide 20

Price Changes

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Public Policy and Pricing

Price competition

is a core element

of our free-market economy. In setting

prices, companies usually are not free

to charge whatever prices they wish.

Many laws govern the rules of fair

play in pricing.

• The Monopolies and Restrictive

Trade Practices (MRTP) Act, 1969

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Public Policy and Pricing

Salient features of the Competition

Act:

• anti-competitive agreements

• _{prohibition of abuse of dominant}

positions by an enterprise

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Public Policy and Pricing

• Under the

MRTP Act

, acts such as

misleading consumers about the prices

at which goods and services are

available in the market and false offers

of bargain prices are considered to be

unfair trade practices

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Public Policy and Pricing

Predatory pricing

,

or selling and

providing services with the intention of

reducing competition or eliminating

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Increasing Prices

Delayed quotation

pricing

Escalator clauses

Unbundling

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Brand Leader Responses to

Competitive Price Cuts

• Maintain price

• Maintain price and add value

• Reduce price

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Marketing Debate



Is the right price a fair price?

Take a position:

1. Prices should reflect the value that

consumers are willing to pay.

or

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