Mk 14: Strategic Pricing Methods

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What are Pricing Strategies?

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1) Cost based (Determine the final price to charge by starting with the cost)
2) Competitor based (Set price to reflect the way they want consumers to interpret their own prices)
3) Value based (Set prices to focus on overall value of the product)

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Improvement Value

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Represents an improvement an estimate of how much more or less consumers are willing to pay for a product relative to other comparable products.

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Cost of Ownership Method

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Consumers may be willing to pay more for a particular product because it will eventually cost less to own than buying multiple cheaper product

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Reference Price

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Price against which buyers compare the actual selling price of the product

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External Reference Price

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Higher price to which the consumer can compare the selling price to evaluate the deal

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Internal Reference Price

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Judge a price offering by accessing price information stored in their memory

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Everyday Low Pricing (EDLP)

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Companies stress the continuity of their retail prices at a level between the regular, non-sale price, and deep discount sales price their competitors may offer

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High/Low Pricing

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Relies on the promotion of sales during which prices are lowered temporarily

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Odd Prices

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Prices that end in odd numbers

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Price Skimming

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Appeals to consumers who are willing to pay the premium to have the innovation first

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Market Penetration

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Set the initial price lower for the introduction in order to build sales, market share, and profits quickly

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Experience Curve

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Many firms expect the unit cost to drop significantly as the accumulated volume sold increases, the costs continue to drop, allowing further reductions in the price

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Pricing Tactics

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Offer short term methods to focus on select components of the five C's. Response to competitive threat or broadly accepted method of calculating a final price

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Seasonal Discounts

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Additional reduction offered as an incentive to retailers to order merchandise in advance of the normal buying season

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Cash Discount

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Reduces the invoice cost if buyer pays the invoice prior to then end of the discount period

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Advertising Allowances

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Offers a price reduction to channel members if they agree to feature the manufacturer's product in their advertising and promotional efforts

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Slotting Allowances

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Fees paid to retailers simply to get new products into stores or to gain more or better shelf space for their products.

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Quantity Discounts

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Reduced price according to the amount purchased

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Cumulative Quantity Discount

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Uses the amount purchased over a specified time period and usually involves several transactions

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Noncumulative Quantity Discount

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Quantity discount based only on the amount purchased in a single order

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Uniform Delivered Pricing

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The shipper charges one rate no matter where the buyer is located

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Zone Pricing

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Sets different prices depending on a geographical division of the delivery rates

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Price Lining

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When marketers establish a price floor and a price ceiling for an entire line of similar products and then set a few other price points in between to represent distinct difference in quality

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Price Bundling

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Selling more than one product for a single, lower price

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Leader Pricing

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Tactic that attempts to build store traffic by aggressively pricing and advertising a regularly purchased item

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Markdowns

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Reductions retailers take on the initial selling price of the product

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Deceptive Price Advertising

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1) Deceptive Reference Point
2) Loss Leader Pricing: lowering the price below the store's cost
3) Bait and Switch: stores lure customers with low price, but then recommend against it because of defects

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Predatory Pricing

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Firms sets a low price for one or more of its products with the intent to drive it competition out of business

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Price Fixing

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Practice of colluding with other competing firms to control prices

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Horizontal Price Fixing

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Occurs when competitors that produce and sell similar product to control prices

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Vertical Price Fixing

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Occurs when parties at different levels of the same marketing channel control prices passed on to consumers