Pricing Products: Pricing strategies www.AssignmentPoint.com
NEW PRODUCT PRICING STRATEGIES The companies, introducing a new product and setting prices for the first time, can choose between two broad strategies – 1. Market-Skimming Pricing 2. Market-Penetration Pricing www.AssignmentPoint.com
Market-Skimming Pricing Setting a high price for a new product to skim maximum revenues layer by layer from the various segments willing to pay the high price. The company makes fewer but more profitable sales. As initial sales slow down, and as competitors threaten to introduce similar products, the company lowers the price to draw in the next price-sensitive layer of customers. www.AssignmentPoint.com
Applicable under certain conditions – The product’s quality and image must support its higher price. Enough buyers must want the product at that price. Competitors should not be able to enter the market easily and undercut the high price. www.AssignmentPoint.com
Market-Penetration Pricing Setting a low price for a new product in order to attract a large number of buyers quickly and win a large market share. Applicable under certain conditions – The market must be very price-sensitive The low price must help keep out the competition and the penetration price must maintain its low-price position. www.AssignmentPoint.com
PRICE-ADJUSTMENT STRATEGIES Discount and allowance pricing: Cash discount Quantity discount Functional discount (trade discount) Seasonal discount Allowances www.AssignmentPoint.com
Segmented pricing Segmented pricing is to sell a product/ service at two or more prices, where the differences in prices is not based on differences in costs. Customer-segment pricing Product-form pricing Location pricing Time pricing www.AssignmentPoint.com
Psychological pricing Psychological pricing is a pricing approach that considers the psychology of the prices and not simply the economy. Price used to say something about the product. When consumers cannot judge quality of the product because they lack the information or skill, price becomes an important quality signals. www.AssignmentPoint.com
Promotional pricing With promotional pricing, companies will temporarily price their products below list price, sometimes even below cost, to increase short-run sales. www.AssignmentPoint.com
Geographical pricing A company price its products differently for customers located in different part of the country or world to cover the higher shipping costs. www.AssignmentPoint.com
International pricing The price that a company should charge in a specific country depends on many factors --- Costs Consumer perceptions and preferences Marketing objectives Economic conditions Competitive situations Laws and regulations The wholesaling and retailing systems www.AssignmentPoint.com
Initiating price changes Initiating price cuts: Several situations may lead a firm to consider cutting its price – Excess capacity Falling market share in the face of strong price competition www.AssignmentPoint.com
Initiating price increases: Several factors may lead a firm to consider increasing its price – Cost inflation Over demand www.AssignmentPoint.com
Price changes Competitor reactions Buyer reactions www.AssignmentPoint.com
2. Responding to price changes Hold current price; continue to monitor competitor’s price Has competitor cut price? No Yes Will lower price negatively affect our market share and profits? Reduce price No Raise perceived quality Yes No Improve quality and increase price Can/should effective action be taken? Yes Launch low-price “fighting brand” www.AssignmentPoint.com