1. Price and non price strategies

2. Price  Limit pricing

3.  Selling at below the profit maximising price in order to discourage new entrants.  The new entrants, remember, may have numerous barriers to overcome and will be unable to sell at the slightly lower price. Limit pricing guarantees less SNP for a longer period of time.

4.  One difficulty arises, however, is determining exactly what price to sell at.

5. Price  Revenue Maximisation – produce where what is equal to what?

6.  Rev Max can secure a larger market share – this may be particularly important at key stages in a business  A) when it launches in a new market  B) when it is threatened with a rival entrant

7.  However, in the long term shareholders will be unhappy about Rev Max

8. Price  Price Skimming  Skimming involves setting a high price before other competitors come into the market.

9.  This is often used for the launch of a new product which faces little or no competition – usually due to some technological features.  Such products are often bought by “early adopters” who are prepared to pay a higher price to have the latest or best product in the market.

10. A group of early adaptors in London’s Covent Garden.

11.  Good examples of price skimming include innovative electronic products, such as the Apple iPad and Sony PlayStation 3.

12. Problems:  Price skimming as a strategy cannot last for long, as competitors soon launch rival products which put pressure on the price.

13.  A second problem is that by price skimming, a firm may slow down the volume growth of demand for the product. This can give competitors more time to develop alternative products ready for the time when market demand (measured in volume) is strongest.

14. Psychological Pricing

15. What do you think this table means?  07.5%  10.3%  20.3%  30.8%  40.3%  528.6%  60.3%  70.4%  81.0%  960.7%

16. Another form of psychological pricing  Attach a price to a certain good:  Big Mac $5.99  Put this product with French Fries and a drink and charge slightly more: $7.49

17.  Price wars – charge lower than Prof Maximising price in order to hurt competitors.

18.  Must be able to absorb the short term losses.  Must have support from the owners/shareholders for the price war.

19.  Collusion

20.  Loss leaders – selling at below the average cost of production.

21. Why?  1. hoping that the product’s complements will compensate for the loss.  2. Hoping that bringing people into the store will encourage them to buy other products.

24.  In the US, Sony has priced the PS4 at $399 (retail). Of course that is the retail price. Distributors will be wanting to make their margin on each unit sold. So how much does it cost Sony to make a new PS4?

25.  The unit cost of a PS4 is $332 which comprises:  Processor: $121  Memory: $64  Hard drive: $23  Blu-ray drive $20  Power management & audio controls: $16  WiFi chip: $8

26.  Other components & assembly: $80  The unit cost of $332 does not include packaging or the dual-shock controller which ships with the console. Allowing for a retailer's margin or mark-up, that suggests that Sony is pricing the PS4 at substantially below the variable cost of the console.

27.  This is a classic example of a loss-leader. Sony is aiming to grab maximum market share in terms of console units sold, making its main revenues from games licensing and other add-ons.

28. Predatory Pricing  Like warning, this is like so totally illegal.  Set prices low in order to eliminate competition and then raise the prices.

29.  The Federal Government accused American Airlines of driving smaller competitors out of one of its most important markets by illegally slashing ticket prices below cost and increasing flights sharply.  The Government said AA used its dominance of the Dallas-Fort Worth International Airport to prevent weaker competitors from gaining a foothold there in the mid-1990's, only to raise prices and reduce service after they departed.

30.  In the Darlington bus wars, Stagecoach offered free bus travel to try and force the rival Darlington Bus company out of business.

31.  Predatory Pricing is illegal and firms found guilty face heavy penalties.  However, proving that PP actually took place is quite difficult for the Competition Commission.

32.  Penetration pricing

33.  Penetration pricing is a marketing technique in which a company offers a new product at a price significantly lower than its competitors. Once it has gained a large market share and customer base, the company begins to increase the price of the product.

34.  Phone and cable or satellite services use penetration price.  It is sometimes found in competitive gas and electricity markets as well.

35.  Price discrimination

36.  Only possible if you can divide your customers into different groups with different PEDs.

37.  Premium Pricing

38.  Price War

39. Non price strategies  Advertising

40.  Celebrity endorcement.

41. George Foreman Grill

42.  Use of apps, smart tecnhology to reach customers

43.  Loyalty bonus

44.  Merge with rival firm.

45.  Lowering costs