Pricing Strategies After deciding whether to use a cost-oriented, demand-oriented, or a competition-oriented policy, your company will develop a pricing strategy.

Pricing Strategies Price lining Bundle pricing Geographical pricing Psychological pricing Prestige pricing Everyday low pricing (ELDP) Promotional Pricing

Price Lining A store might charge $25, $35, and $50 for blouses to establish low, middle and high quality items. Price differences must be great enough to represent different qualities.

Product Mix Strategies Optional Products – Setting prices for accessories or options (example: cars) Captive Products – Set price for a product low, but make supplies needed to run that product, high (example: printers) By-product – Setting prices low for waste (example: Wood chips)

Bundle Pricing Offering several complementary products in a package that is sold at a single price that is lower than the cost of buying each item separately Advantage: Businesses can sell items that they may not have sold otherwise which increases sales and revenue

Geographical pricing Adjusting the price of an item because of the location of the customer Delivered price includes delivery charges International pricing –Economic conditions –Exchange rate –Shipping –Tariffs –Consumers’ income levels and lifestyles

Psychological Pricing Odd-even Prestige Multiple Unit Everyday low price

Odd-even Odd numbers convey a bargain –$19.99, $9.95, $.99 Even numbers convey quality –$10, $50, $50.00

Prestige Pricing Set a higher than average price to suggest status and high quality

Multiple-Unit Pricing items in multiples suggests a bargain Like 3 for $1.00, instead of $.34 each

ELDP (everyday low price) Consistent low prices Will not raise or lower price in the future Not as deeply discounted as promotional pricing Advantages –Creates stability –Reduced promotional expenses –Reduced losses due to discounting

Promotional Pricing Loss Leader Special event Rebates Coupons

Loss Leader Below cost prices Used to increase traffic Used to increase sales in other products

Special Event Items reduced in price for a short time based on a specific happening Manufacturers offer special promotions to retailers that are willing to advertise or promote a manufacturer’s products

Rebates Partial refunds from the manufacturer Consumers need proof of purchase and store receipt What is their hope? Manufacturers also offer rebates to retailers and wholesalers –If you purchase a certain amount of goods prior to running a promotion

Coupons Allow customers to take reductions at the time of purchase Found where? Hopefully, consumer will buy product just because they have a coupon.

Discounts and Allowances Cash discounts Quantity discounts Trade discounts Seasonal discounts Special allowances

Cash Discounts Offered to encourage quick payment 2/10, n/30

Quantity Discounts Place a large order, get a discount Non-cumulative offered per order (the more you buy, the larger the discount) Cumulative offered over a specified period of time (6 months) OR Buyers might sign a contract agreeing to buy a certain amount –Example: Advertisers who agree to use a certain amount of newspaper columns might be charged cheaper rates

Seasonal Discounts Discount for buying out of season Manufacturers use to obtain orders Retailers use to reduce cost of storage

Allowances Go directly to the buyer Offered a price reduction to sell back an old model

Trade Discounts Not really discounts at all Prices quoted to retailers and wholesalers Percentage discount from list price or manufacturer’s suggested retail price

Set Prices Based on all the information in the first five steps of price setting, a company sets a price for its product.