1. Pricing Strategies

2. Build, hold, harvest, reposition
Strategic Objectives
Build, hold, harvest, reposition

3. Marketing-oriented Pricing
Pricing based on product elasticity or the market

4. Price Elasticity

5. Supply and Demand
Remember: Demand tends to go up when price goes down, and down when price goes up.
The degree to which demand for a product is affected by its price is called demand elasticity.
Products can had either elastic demand or inelastic demand

6. Elastic Demand
Refers to situations in which a change in price creates a change in demand

7. Law of Diminishing Marginal Utility
The increases in demand would not continue indefinitely
At some point consumers will have as much as they want of the product and not buy more
Example: You buy 5 bottles of laundry detergent on sale. A week later it is on sale again. Would you buy more?

8. Inelastic Demand
Refers to situations in which a change in price has very little effect on demand for a product.

9. Factors of Demand Elasticity
Brand Loyalty
Price Relative to Income
Availability of Substitutes
Luxury vs. Necessity
Urgency of Purchase

10. Cost-oriented Pricing
When businesses first calculate the cost of producing the product and expense of doing business to determine the price

11. Competitor-oriented pricing
When a business creates their price based on their competitors whether is higher, similar, or lower

12. Skimming/Penetration Strategy
Skimming Pricing is a pricing policy that sets a very high price for a new product
This is used when demand is greater than supply
The business realizes this pricing can only be temporary
Example: Nintendo NES Classic Edition
Penetration pricing is the opposite of skimming pricing: the price for a new product is set very low.
The purpose is to encourage as many people as possible to buy the product, and thus penetrate the market
This strategy is used for price- sensitive or elastic demand items
This strategy may be used to block competition

13. One Price/Flexible-Price Policy
When all customers pay the same price
Prices are quoted on items with price tags and signs
Most retail in North America
It is consistent and reliable
Allows business to estimate sales easier
When customers pay different prices for the same type or amount of merchandise
This permits customers to negotiate a price
Common for vehicles, artwork, antiques
Doesn’t offer consistent profits

14. Product Mix Strategies
Price lining: sets a limited number of prices for specific groups or lines of merchandise. For example a store prices their dress shirts at $25, $35, or $50
Optional product: having pricing for different options involved for a single product. For example cars having a upgrade option packages
Captive product: price of the product is low, but supplies needed to use it are high. For example printers tend to be priced low, but the ink is expensive
By-product: pricing leftovers at a low price to get rid of them. For example selling wood scraps as kindling or wood chips by a furniture company
Bundle pricing: selling complementary, or corresponding products in a package. For example a computer coming with preinstalled software

15. Location Pricing
Geographical pricing refers to price adjustments required because of different shipping agreements.
Free on Board (FOB) origin or point-of-production shipping arrangements are when the customer pays the shipping and there is no price adjustment, but rather a shipping charge.
FOB destination pricing the seller pays shipping and assumes responsibility for shipping until it reaches the buyer. The price usually includes an adjustment prior to sale to cover the shipping.
International prices have to consider differences in costs, consumers, competition, laws, regulations, economic conditions, and monetary exchange rates
Costs to consider: shipping, tariffs, or other charges

16. Segmented Pricing Strategy
Uses two or more different prices for a product, though there is no difference in the item’s cost
Helps optimize profits and compete effectively
Four factors
Buyer identification
Product design
Purchase location
Time of purchase

17. Segmented Pricing Strategy Factors
Buyer Identification
Product Design
Recognizing a buyer’s sensitivity to price is one way to identify a customer segment
For example
offering senior and student pricing
First class tickets
Loyalty pricing
Different prices for different product styles that do not reflect the cost of making the item, but rather the demand
For example
A coloured washer and dry set priced higher than a white set

18. Segmented Pricing Strategies
Purchase Location
Time of Purchase
the price is dictated by the location where the good or service is sold
For example
The cost of a ticket for a Broadway show compared to the ticket for the same show on the road
Some businesses experience highs and lows in sales activity
During peak times in demand the business can charge a higher price
For example
Phone companies charging more for long distance during business hours
Hotel room charges being higher during peak season for the area

19. Psychological Pricing Strategies
Odd-even Pricing: involves setting price figures that end in either odd or even numbers. Odd pricing ($0.79, $9.95) convey an everyday low price. Even pricing ($10, $50, $100) convey a quality image.
Prestige Pricing: higher than average price to convey status and quality
Multiple-unit Pricing: selling in multiples suggests a bargain and helps increase sales volume. Selling three items for $1.00 instead of $0.34 each
Everyday Low Prices (EDLP): Price is set low with no intention of raising or offering discounts in the future (Walmart)
Are pricing techniques that help create an illusion for customers

20. Promotional Pricing
Loss Leader: luring customers in with items priced below cost in hopes they will buy other items at regular price to make up the difference
Special-Event: items are reduced in price for a short period of time (Black Friday, Back to School, Boxing Day, etc)
Rebates: partial refunds provided by the manufacturer, you will have to submit a rebate form with proof of purchase to manufacturer
Coupons: allow customers to take a discount at the time of purchase
Generally used in conjunction with sales promotions wherein prices are reduced for a short period of time

21. Discounts and Allowances
Cash Discounts: a discount for paying bills quickly. Invoices will list terms such 2/10, net 30 which means you save 2% if you pay within the first ten days
Quantity Discounts: when a buyer receives a money off for purchasing a large quantity of an order. A noncumulative discount would mean you receive the discount only at the time of purchase. A cumulative discount would mean you receive a discount on all orders within a specific time frame.
Trade Discounts: not a discount but rather a pricing difference that manufacturers offer to wholesalers versus retailers
Seasonal Discounts: buying seasonal items before or after the season they are intended for usually results in discounts to increase sales early or clear stock
Trade in Allowances: when you trade in an older item for a discount on a newer version

22. Steps for Determining Price
Establish your pricing objectives
Determine your costs
Estimate demand
Study the competition
Decide on a pricing strategy
Set your prices

23. How Technology Helps Pricing
Businesses:
using web-based data and programs used to match this data with current inventory and recommend pricing in a timely, and convenient method
Point-of-sale systems which track inventory from the date of arrival, movement from storage to the store, and sale
RFID technology takes a point-of-sale system to another level where all items have a time chip embedded in the product or packaging to place items within the store and trigger security alarms if not deactivated before leaving store
Customers:
Websites, and applications which provide them with real-time pricing information

24. Activity: Price it Right!
Use the provided magazines to choose a product which you will price for sale in your store. (In groups of 4-5)
You must choose a strategy which directly relates to the price you have individually picked
The aim of this game is that if you price the product too low you will lose (customers won’t buy your product) and if you price too high you will lose as well
The strategy must be right!
A winner will be chosen while your group shares.
You each have a slip to tear off at the end of this note to complete the activity