2. Pricing Strategies
Market-penetration pricing
- setting the price as low as possible to win a large
market share, then cut price further as falling costs are
experienced (Ex: IKEA Home Furnishings)
May be adopted under the following conditions:
a. the market is highly price sensitive and a low price
stimulates market growth;
b. production and distribution costs fall with accumulated
production experience;
c. a low price discourages actual and potential
competition.

3. Pricing Strategies
Market-skimming pricing
- setting the starting price as high and then slowly
drop over time (Sony’s introduction of HDTV in 1990 at
$43,000, became $6,000 (28-inch) in 1993, then $1,200 (40-
inch) in 2007.
May be adopted under the following conditions:
a. a sufficient number of buyers have a high current
demand;
b. the unit costs of producing a small volume are not so
high that they cancel the advantage of charging will bear;
c. the high initial price does not attract more competitors
to the market;
d. the high price communicates the image of a superior
product.

4. Pricing Strategies
Mark-up pricing
- the most elementary pricing method which adds a
standard mark-up to the product’s cost
- the most popular pricing strategy
Advantages of mark-up pricing:
a. sellers can determine costs much more easily than
they can estimate demand
b. where all firms in the industry use this pricing
method, prices tend to be similar and price competition
is minimized
c. many people feel that cost-plus pricing is fairer to
both buyers and sellers

5. Pricing Strategies
Target-return pricing
- determining the price that would yield its target
return on investment (ROI) (Ex. General Motors
priced its automobiles 15%-20% ROI)
- tends to ignore price elasticity and competitors’
prices
Formula:
Target-return =unit cost + desired return X investment
price unit sales

6. Pricing Strategies
Perceived-value pricing
- made up of several elements, such as the buyers’
image of the product performance, the warranty
quality, customer support, and softer attributes
such as the suppliers’ reputation, trustworthiness,
and esteem.
- firms use the other marketing mix elements,
such as advertising and sales force, to
communicate and enhance perceived value in
buyers’ minds.

7. Pricing Strategies
Value pricing
- charging a fairly low price for a high-quality
offering
- reengineering the company’s operations to
become a low-cost producer without sacrificing
quality, to attract a large number of value-
conscious customers
Practitioners of value pricing: IKEA Home
Furnishings, Procter & Gamble

8. Pricing Strategies
Going-rate pricing
- the firm bases its price largely on competitors’
prices, charging the same, more or less than
major competitors
- smaller firms “follow the leader” when the
market leader’s prices change rather than when
their own demand or costs change
- where costs are difficult to measure or
competitive response is uncertain, firms feel the
going price is a good solution because it is
thought to reflect the industry’s collective
wisdom

9. Pricing Strategies
Auction-type pricing
- usually done using the Internet (Ex. Ebay) to
dispose of excess inventories or used goods.
3 major types of auctions:
1. English auctions (ascending bids) where there is
one seller and many buyers
2. Dutch auctions (descending bids) where there is
one buyer and many sellers. The buyer announces
what he/she wants to buy and potential sellers
compete by offering the lowest price

10. Pricing Strategies
Auction-type pricing
- usually done using the Internet (Ex. Ebay) to
dispose of excess inventories or used goods.
3 major types of auctions:
3. Sealed-bid auctions – would-be suppliers can
submit only one bid and cannot know the other
bids

11. Pricing Strategies
Geographical pricing
- the company decides how to price its products
to different customers in different locations and
countries
- company may charge higher prices to distant
customers to cover the higher shipping costs
Pricing options for geographical pricing:
Barter – the buyer and seller directly exchange
goods, with no money and no third party
involved

12. Pricing Strategies
Geographical pricing
Pricing options for geographical pricing:
Compensation deal– the seller receives some
percentage of the payment in cash and the rest in
products
Buyback arrangement – the seller sells a plant,
equipment, or technology to another country and
agrees to accept as partial payment products
manufactured with the supplied equipment
Offset – the seller receives full payment in cash but
agrees to spend a substantial amount of the money
in that country within a stated time period

13. Pricing Strategies
Promotional pricing
- companies use several pricing techniques to
stimulate early purchase
Techniques:
 Loss-leader pricing
 Special-event pricing
 Cash rebates
 Low-interest financing
 Longer payment terms
 Warranties and service contracts
 Psychological discounting

14. Pricing Strategies
Differentiated pricing
- companies often adjust their basic price to
accommodate differences in customers, products,
locations, and so on
 Customer-segment pricing
 Product-form pricing
 Image pricing
 Channel pricing
 Location pricing
 Time pricing