Chapter 11 – Pricing strategies - RhuM'antiK



Chapter 11 – Pricing strategies NEW PRODUCT PRICING STRATEGIES Market-skimming pricing Setting a high price for a new product to skim maximum revenues layer by later from the market Apple uses this strategy Iphones are expensive when introduced to the market so that people that really want it and can afford it will get it Then lowers price to attract new buyers Product’s quality and image must support its higher price Enough buyers must want the product at that price Costs of producing a smaller volume cannot be so high that they cancel the advantage of charging more Competitors should not be able to enter the market easily and undercut the high price Market-penetration pricingCompanies set a low initial price to penetrate the market quickly and deeply to attract a large number of buyers quickly and win a large market share High sales volume results in falling costs allowing companies to cut their prices even further Market must be highly price sensitive so that a low price produces more market growth Production and distribution costs must decrease as sales volume increases Low price must help keep out the competition The penetration pricer must maintain its low-price position PRODUCT MIX PRICING STRATEGIES Product line pricing Companies usually develop product lines rather than single products Management must determine the price steps to set between the various products in a line Price steps should take into consideration cost differences between products in the line Should account for differences in customer perceptions of the value of different features Product mix pricing Optional product pricing Offering to sell optional or accessory products along with the main product Example: Bluetooth or GPS in cars Companies must decide which items to include in the base price and which to offer as options Captive product pricing Companies that make products that must be used along with a main product Example: razor blade cartridges, videogames and printer cartridges Producers of the main products often price them low and set high mark-ups on the suppliersHowever, finding the right balance between the main product and captive product prices can be tricky Consumers trapped into buying expensive captive products may come to resent the brand that ensnared them Called two-part pricing: broken into a fixed fee + a variable usage rate By product pricing Producing products and services often generates by-products If they have no value and if getting rid of them is costly, this will affect pricing of the main product Company seeks a market for these by-products to help off-set the costs of disposing of them and help make the price of the main product more competitive Product bundle pricing Sellers often combine several products and offer the bundle at a reduced price Promote the sales of products consumers might not otherwise buy, but the combined price must be low enough to get them to buy the bundle PRICE ADJUSTEMENT STRATEGIES Discount and Allowance Pricing Most companies adjust their basic price to reward customers for certain responses such as the early payment of bills, volume purchases and off-season buying Can take many formsDiscounts:Cash discount: a price reduction to buyers who pay their bills promptly Quantity discount: price reduction to buyers who buy large volumes Functional discount: to trade channel members who perform certain functions such as selling, storing and record keeping Seasonable discount: price reduction to buyers who buy merchandise or services out of seasonAllowances:Trade-in all allowances: price reductions given for turning in an old item when buying a new one Promotional allowances: payments or price reductions to reward dealers for participating in advertising and sales support programs Segmented pricing Companies will often adjust their basic prices to allow for differences in customers, products and locations Company sells a product or service at 2 or more prices, even though the difference in prices is not based on differences in costs Customer segment pricingDifferent customers pay different prices for the same product or services Product form pricingDifferent versions of the product are priced differently but not according to differences in their costs Location based pricing Company charges different prices for different locations Time based pricingA firm varies its price by the season, the month, the day or even the hour Market must be segmentable Segments must show a different degree of demand Costs of segmenting and reaching the market cannot exceed the extra revenue obtained from the price difference Should reflect real differences in customers’ perceived value Consumers in higher price tiers must feel that they are getting their extra money’s worth for the higher prices paid Company must be careful not to treat customers in lower price tiers as second-class citizens Psychological pricing Sellers consider the psychology of prices not simply the economics Consumers usually perceive higher-priced products as having higher quality Reference pricesPrices that buyers carry in their minds and refer to when looking at a given product Might be formed by noting current prices, remembering past prices or assessing the buying situationSellers can influence those reference prices when setting price Promotional pricing Companies will temporarily price their products below list price and sometimes even below cost to create buying excitement and urgency Discounts from normal prices to increase sales and reduce inventories Special event pricing in certain seasons to draw more customers Cash rebates to consumers who buy the product from dealers within a specified time; the manufacturer sends the rebate directly to the customer Low-interest financing, longer warranties, free maintenance Used too frequently and copied by competitors Can copy “deal prone” customers who wait until brands go on sale before buying them Constantly reduce prices can give a negative brand image Geographical Pricing FOB Origin pricing Goods are placed free on board a carrier The title and responsibility pass to the customerCostumers pay the shipping costs from the factory to the destinationUniform delivered pricing Opposite of FOB Charges the same price + shipping costs to all customers regardless of their location Shipping costs are set a the average shipping cost Zone pricing Company sets up 2 or more zones All customers within a zone pay a single total price The more distant the zone, the higher the price Basing-point pricingSeller selects a given city as a basing point and charges all customers the shipping cost from that city to the customer location regardless of the city from which the goods are actually shipped Freight-absorption pricing Seller absorbs all or part of the actual freight charges to get the desired business Seller might reason that if it can get more business its average costs will decrease Dynamic pricing Adjusting prices continually to meet the characteristics and needs of individual customers and situations Offers many advantages for marketers and customers Can adapt their prices based on customers’ needs and wants Plenty of database to compare prices and products from different vendors Consumers can negotiate prices at online auction sites and exchanges It adjusts prices according to market forces Often works to the benefit of the customer Marketers need to be careful not to use dynamic pricing to take advantage of certain customer groups, damaging important customer relationships International pricing Must decide what prices to charge in the different countries in which they operate Companies can set a uniform worldwide price Depends on many factors includingeconomic conditions competitive situationslaws and regulations development of the wholesaling and retailing system consumer perceptions and preferences Different marketing objectives changes in pricing strategy Costs play an important role in setting international prices Price escalation differences in selling strategies or market conditions PRICE CHANGES Initiating price changes Initiating price cuts Excess capacity Falling demand May lead to price war Initiating price increases Improve profits Cost inflation Over demandMust keep a sense of fairness Companies should tell customers why prices have increasedCompetitor reactions to price changes Most likely to react when the number of firms involved is small When the product is uniform When the buyers are all well informed about products and prices Responding to price changes How should a firm respond to a price change by a competitor?5270530670500Assessing and responding to competitor price changes: PUBLIC POLICY AND MARKETINGprice competition is a core element of our free-market economy Companies usually are not free to charge whatever prices they wish Pricing within channel levels Sellers must set prices without talking to competitors price collusion is suspected Prohibited from using predatory pricing (selling below cost with the intention of punishing a competitor or gaining higher long-run profits by putting competitors out of business Protects small sellers from larger ones who might sell items below cost temporarily or in a specific locale to drive them out of business Bigger problem: determine what contributes predatory pricing behaviour Selling below cost to unload excess inventory isn’t Selling below cost to drive out competitors is Pricing across channel levels The Robinson-Patman Act ensures that sellers offer the same price terms to customers at a given level of trade Seller can also discriminate in its pricing if the seller manufactures different qualities of the same product for different retailers Seller has to prove that these differences are proportional Law also prohibits retail price maintenance:Manufacturer cannot require dealers to charge a specified retail price for its product Cannot refuse to sell to a dealer that takes independent pricing action nor can it punish the dealer by shipping late or denying advertising allowances Deceptive pricing occurs when a seller states prices or price savings that mislead consumers or are not actually available to consumers Scanner fraud ................
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