PRICING
STRATEGIES
Agenda

Pricing Strategies

Price Adjustment Strategies
Price
Money Charged for a Product or
Service
Generates Revenue
Easy to Change
Many Names
Pricing Strategies
Quality
Low

Low

High

Economy
Pricing

Market
Penetration

Market
Skimming

Premium
Pricing

Price
Hi...
Market Skimming

Applies to new, distinctive products, early in the PLC
Market Skimming
• Most consumer
electronic products
• The iPod was priced
$259 in 2004.
Penetration Pricing

Applies to large markets with elastic demand,
economies of scale, intense competition
Captive Product Pricing
Two Pricing Mistakes

Reducing Price Too Soon
Pricing Based on Cost
instead of Customer Value
Economy Pricing
Premium Pricing
Price Adjustment Strategies

Strategies
•
•
•
•
•

Discount / allowance
Segmented
Psychological
Promotional
International
...
Quantity Discounts in Public Transport
Two-part Tariffs

Total Price = Retail Price + Shipping Price
Seasonal Discounts
Trade-in
Pure Bundling
Mixed Bundling
Price Adjustment Strategies

Strategies
•
•
•
•
•

Discount / allowance
Segmented
Psychological
Promotional
International
...
Pricing a Product-Line
Product Lines in India

High
Quality

Low
Quality

Toyota Camry
W1

Toyota Corolla
Altis
Time Pricing
Student Discounts in Public Transport
Segmented Pricing Effectiveness
– Market must be “Segmentable”
– Segments must show different demand
– Pricing must be leg...
Price Adjustment Strategies

Strategies
•
•
•
•
•

Discount / allowance
Segmented
Psychological
Promotional
International
...
Psychological Pricing
Psychological Pricing
This ad for a luxury
priced car attempts to
show that Mercedes
owners form important
relationships w...
Price Adjustment Strategies

Strategies
•
•
•
•
•

Discount / allowance
Segmented
Psychological
Promotional
International
...
Promotional Pricing
No Promotional Pricing
Loss Leader
Sold at (or below) cost

Frequently purchased product
Inconveniently Located
Perishable
Not Loss Leader – Everyday Low Pricing
Promotional Pricing – Challenges
• Easily copied by competitors
• Creates deal-prone consumers
• Erode brand value
• Indus...
Price Adjustment Strategies

Strategies
•
•
•
•
•

Discount / allowance
Segmented
Psychological
Promotional
International
...
India

USA
Price Transparency
Competition Based Pricing
Competition-based Pricing
Pricing
Pricing
Pricing
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Pricing

  1. 1. PRICING STRATEGIES
  2. 2. Agenda Pricing Strategies Price Adjustment Strategies
  3. 3. Price Money Charged for a Product or Service Generates Revenue Easy to Change
  4. 4. Many Names
  5. 5. Pricing Strategies Quality Low Low High Economy Pricing Market Penetration Market Skimming Premium Pricing Price High
  6. 6. Market Skimming Applies to new, distinctive products, early in the PLC
  7. 7. Market Skimming • Most consumer electronic products • The iPod was priced $259 in 2004.
  8. 8. Penetration Pricing Applies to large markets with elastic demand, economies of scale, intense competition
  9. 9. Captive Product Pricing
  10. 10. Two Pricing Mistakes Reducing Price Too Soon Pricing Based on Cost instead of Customer Value
  11. 11. Economy Pricing
  12. 12. Premium Pricing
  13. 13. Price Adjustment Strategies Strategies • • • • • Discount / allowance Segmented Psychological Promotional International • Types of discounts – Cash discount – Quantity discount – Seasonal discount • Allowances – Trade-in allowances – Promotional allowances
  14. 14. Quantity Discounts in Public Transport
  15. 15. Two-part Tariffs Total Price = Retail Price + Shipping Price
  16. 16. Seasonal Discounts
  17. 17. Trade-in
  18. 18. Pure Bundling
  19. 19. Mixed Bundling
  20. 20. Price Adjustment Strategies Strategies • • • • • Discount / allowance Segmented Psychological Promotional International • Types of segmented pricing strategies: – Product-line pricing – Location pricing – Time pricing • Also called revenue or yield management • Certain conditions must exist for segmented pricing to be effective
  21. 21. Pricing a Product-Line
  22. 22. Product Lines in India High Quality Low Quality Toyota Camry W1 Toyota Corolla Altis
  23. 23. Time Pricing
  24. 24. Student Discounts in Public Transport
  25. 25. Segmented Pricing Effectiveness – Market must be “Segmentable” – Segments must show different demand – Pricing must be legal – Costs of segmentation cannot exceed revenues earned – Segmented pricing must reflect real differences in customers’ perceived value
  26. 26. Price Adjustment Strategies Strategies • • • • • Discount / allowance Segmented Psychological Promotional International • The price is used to say something about the product. – Price-quality relationship – Reference prices – Differences as small as five cents can be important – Numeric digits may have symbolic and visual qualities that psychologically influence the buyer
  27. 27. Psychological Pricing
  28. 28. Psychological Pricing This ad for a luxury priced car attempts to show that Mercedes owners form important relationships with their cars.
  29. 29. Price Adjustment Strategies Strategies • • • • • Discount / allowance Segmented Psychological Promotional International • Temporarily pricing products below the list price or even below cost – Contracts, Special-Event pricing – Cash rebates – Low-interest financing, warranties – Loss leaders
  30. 30. Promotional Pricing
  31. 31. No Promotional Pricing
  32. 32. Loss Leader Sold at (or below) cost Frequently purchased product Inconveniently Located Perishable
  33. 33. Not Loss Leader – Everyday Low Pricing
  34. 34. Promotional Pricing – Challenges • Easily copied by competitors • Creates deal-prone consumers • Erode brand value • Industry Price Wars
  35. 35. Price Adjustment Strategies Strategies • • • • • Discount / allowance Segmented Psychological Promotional International • Prices charged in a specific country depend on many factors – – – – – – Economic conditions Competitive situation Laws / regulations Distribution system Consumer perceptions Corporate marketing objectives – Cost considerations
  36. 36. India USA
  37. 37. Price Transparency
  38. 38. Competition Based Pricing
  39. 39. Competition-based Pricing

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