Pricing Strategies

Factors Affecting Price Setting Pricing Objectives –profit –competition –market share Cost –ratio of fixed costs to variable costs –economies of scale available to the firm –cost structure of a firm relative to its competitors Competition Demand

Classification of Price Strategies Differential Pricing –same brand sold at different prices to consumers Competitive Pricing –prices are set to exploit competitive position Product Line Pricing –related brands are price to exploit mutual dependencies

Differential Pricing Strategies Second Market Discounting –a firm sells its product in a secondary market at a discount Periodic Discounting –hold price during “prime period” and discount to take advantage of price sensitive customers Random Discounting (i.e., sales) –rely on uninformed consumer to pay regular price, yet take advantage of those that search for the lowest price

Competitive Pricing Strategies Penetration Pricing –pricing as low as possible to take control of the market and keep competition out Experience Curve Pricing –exploiting experience in manufacturing, marketing, etc. and economies of scale in pricing Price Signaling –use price to signal quality Geographic Pricing –basing price on geographic area FOB zone pricing uniform delivered pricing freight absorption pricing

Product Line Pricing Strategies Price Bundling –pricing two or more products as a bundle at a price better than the aggregate prices of the items in the bundle Premium Pricing –pricing different versions of the product at different prices to exploit consumer heterogeneity in demand Image Pricing –a firm brings out an identical version of its current product with a different name (or model number) and a higher price Complementary –pricing such that the loss in the sales of one product is covered by the profit from the sale of a relate product captive pricing two-part pricing loss leader pricing

Government Regulation Price Fixing Deceptive Pricing Price Discrimination Promotional Pricing