The document discusses various pricing strategies that companies can use to maximize profits and attract customers. It covers strategies for new products like penetration pricing to target market share and skimming to charge high initial prices. It also discusses psychological pricing tactics, bundling products, and adjusting prices based on customer segments, competitors, and a product's life cycle stage. The overall goal of different pricing strategies is to find the optimal price point that generates the most revenue.

1. Price

2. Pricing
Strategies

3.  Increase profits
 Attract new customers
 Maintain current customers
 Increase profit per customer
 Introduce new product
 Generate cash
 Improve Return On Investment

11. Synonyms for Price
 Rent
 Tuition
 Fee
 Fare
 Rate
 Toll
 Premium
 Honorarium
 Special
assessment
 Bribe
 Dues
 Salary
 Commission
 Wage
 Tax

12. Pure Competition
Many Buyers and Sellers
Who Have Little
Effect on the Price
Monopolistic
Competition
Many Buyers and Sellers
Who Trade Over a
Range of Prices
Pricing in Different Types of Markets
Market and Demand Factors
Affecting Pricing Decisions
Oligopolistic
Competition
Few Sellers Who Are
Sensitive to Each Other’s
Pricing/ Marketing
Strategies
Pure Monopoly
Single Seller
CHPT: 14-12

13. The Components of Total Cost
Used in Determining Pricing
Total Costs
Sum of the Fixed and Variable Costs for a Given
Level of Production
Fixed Costs
(Overhead)
Costs that don’t
vary with sales or
production levels.
Rent on the Arena
Transportation
Salaries
Variable Costs
Costs that do vary
directly with the
level of production.
Raw materials
Packaging
Materials

14. The Three C’s Model
for Price Setting
Costs Competitors’
prices and
prices of
substitutes
Customers’
assessment
of unique
product
features
Low Price
No possible
profit at
this price
High Price
No possible
demand at
this price

15. Identify the
popularity
of the
product
Compare
Competition
Target
Budget
Conscious
Customers

17. Elastic Demand
 Small change in price
causes a significant
change in quantity
demanded
 Ferrari

18. Inelastic Demand
 Change in price leads to
little affect or change on
quantity demanded
 Gasoline, Milk

19. Attract New Customers
 Introductory coupons /
discounts
 provide incentive
 maintain reference price
 Trial offers
 increase familiarity
 reduce risk
 Problem
 perceived as unfair

20. Pricing Common Mistakes
 Number one problem facing marketing
executives
 Too cost oriented
 Not revised enough to reflect changes
in market
 Do not take entire marketing mix into
account
 Not varied enough for different
products, different market segments,
different purchase occasions

21. Price Cues
 “Left to right” pricing ($299
vs. $300)
 Odd number discount
perceptions
 Even number value
perceptions
 Ending prices with 0 or 5
 “Sale” written next to price

22. Copyright © 2009 Pearson
Education, Inc. Publishing as
Prentice Hall
When to Use Price Cues
 Customers
purchase item
infrequently
 Customers are new
 Product designs
vary over time
 Prices vary
seasonally
 Quality or sizes vary
across stores

23. Pricing strategies change as the product
passes through its life cycle
•PREMIUM STRATEGY
• Producing a high-quality product
and charging the highest price
•ECONOMY STRATEGY
•Producing a lower quality product but charging
a low price
Rolex vs Timex watches

24. •GOOD VALUE STRATEGY
•“We have high quality, but at a lower
price”
•OVERCHARGING STRATEGY
•Company overprices its product
in relation to its quality
•GM uses combination of strategies, offering
various automobiles
Hummer – Cadillac - Pontiac
Marriott – Courtyard Marriott – Residence Inn

25. Pricing Strategies for New
Products

26. “Penetration” is a market
share maximization strategy
Penetration Pricing
•Setting a low initial price
•Attract large number of buyers
•Win large market share
•Low price serves as barrier to entry for
competitors

27. “Skimming” is a profit
maximization strategy
Market Skimming –
•Setting initial high prices for a
short time before lowering prices to
more competitive levels
•Ex: iPhone, new albums,
movies
•As sales slow or competitors
introduce similar products, price is
lowered

28. •Follow-the-leader pricing strategy
•uses a particular competition as
a model
•Variable pricing strategy
•offer price concessions to
certain customer
•Flexible pricing strategy
•take into consideration special
market conditions
•What the traffic will bear
•only used when there is little or
no competition
Tactics For
Fine-Tuning

29. Pricing Strategies
 Differential Pricing Strategies
 Discriminatory pricing
• Selling same product/service to
different buyers at different price
• Movies tickets sold to
children/over 65 for discount
• Priceline.com
 Second-market discounting
• Students get in free at Vanderbilt
football games
• Golf courses weekend versus
weekday pricing
When you name your price, the seller
has already told Priceline what minimum
price he is willing to accept. The
difference from traditional retailing is
that you, the buyer, don't know what that
price is. That's a breakthrough, all right.
For sellers. Priceline offers them a clever
way to charge different prices to
different customers, based on their
willingness to pay.

30. Psychological Pricing
 Price is based on
consumer’s emotion
and image rather than
economy
 Prestige Pricing
 Setting an artificially
high price to provide a
distinct image
 Reference Pricing
 Lesser know brands
featured next to name
brands to reflect value
$999.99
VS

31. Product Line Pricing
 Setting price steps between items in the
same product line
 Each product offers more features
 John Deere tractors 1200.00 – 5000.00
 Armani Sports Coats 250 – 500 – 850
 Prices should consider
 Differences between products, customer
evaluations of features, and benefits &
competitors prices

33. Psychological Pricing
 Odd-Even Pricing
 $9.95 vs $10.00
 Traditional Pricing
 Keep prices close to historical costs

34. Optional Product Pricing
 Pricing optional or accessory
products sold with the main product
 Which products to include in base
price, and which to offer as options
Car – power windows, cruise
control, radio with CD player,
DVD player

35. By-product Pricing
 Pricing low-value by-products to get rid
them, or to reduce the price of the main
product
 Chicken processors sell feathers
to mattress and pillow makers
 Lumber mills sell bark and
sawdust as decorative mulch for
home and commercial
landscaping
 Allows producer to reduce main product
price and become more competitive

36. Captive Product Pricing
 Pricing products that must be used
with main product
 Razor blades used with special handle
 Camera film that is camera specific
 Computer software
 Main products are priced low
 Set high markup on captive product

37. Two-part Pricing
 The price of the service is broken into a
fixed fee and a variable usage fee
 Telephone charges monthly rate – fixed
fee
 Charges for calls beyond certain amount of
minutes – variable usage fee
 Fixed amount must be low enough to
induce usage of service
 Profit is made on variable fees

38. Product Bundle Pricing
 Combining several products and offering
the combination at a price below that of
buying the products individually
 Theatres & sports teams selling season
tickets
 Hotel packages that include room, meals,
and entertainment
 Restaurants offer complete meals rather
than individual items from a la carte menu
 Promotes sale of products that might not
purchased otherwise

39. Bundling at Disney World
Products:
 Each Park Entrance
 “Hopper” Option
 Where is the 1 day hopper?
(These are the 2005 prices)