Pricing Strategies

Pricing Strategies Ch. 26 ME

Section 26.1 Basic Pricing Policies

Basic Pricing Concepts • Cost-Oriented Pricing • Marketers first calculate the costs of acquiring or making a product and their expenses of doing business • Mark-Up Pricing – resellers add a dollar amount to their cost to arrive at a price • Cost-Plus Pricing – all costs and expenses are calculated, and then the desired profit is added to arrive at a price • Demand-Oriented Pricing – determines what consumers are willing to pay for given goods and services • Pricing is dependent on the consumer’s perceived value of the item

Basic Pricing Concepts • Competition-Oriented Pricing • Price above the competition • Price below the competition • Price in line with the competition (Going-Rate Pricing) • There is no relationship between the cost and price or between the demand and price • Competitive-Bid Pricing– determines the price for a product based on bids submitted by companies to a company or government agency • Establishing Base Price – all three pricing strategies can be used

Pricing Policies One-Price Policy – is one in which all customers are charged the same prices Flexible-Price Policy – is one in which customers pay different prices for the same type or amount of merchandise

Non-Going Rate Strategies Skimming Pricing – is a pricing policy that sets a very high price for a new product Penetration Pricing – the price for a new product is set very low

Specialized Methods for Closing the Sale Which Close – encourages a customer to make a decision between two items Standing-Room-Only Close – is used when a product is in short supply or when the price will be going up in the near future Direct Close – is a method in which you ask for the sale Service Close – is a closing in which you explain services that overcome obstacles or problems

Failure to Close the Sale • Not every sale presentation will result in a sale • Get Feedback • Maintain a Positive Attitude • Prepare for future sales calls • Success in sales

Section 26.2 Strategies in the Pricing Process

Product Mix Strategies • Product Mix Pricing Strategies – involve adjusting prices to maximize the profitability for a group of product rather than on just one item • Price Lining – is a special pricing technique that sets a limited number of prices for specific groups or lines of merchandise • Optional Product – sets prices for accessories or options sold with the main product • Captive Product – sets the price for one product low but compensates for that low price by pricing the supplies needed to operate that product high

Product Mix Strategies • By-Product – helps businesses get rid of excess materials used in making a product by using low prices • Bundle Pricing – a company offers several complimentary products in a package that is sold at a single price • Geographical Pricing – refers to price adjustments required because of the location of the customer for delivery of products

Segmented Pricing Strategies • Segmented Pricing Strategy – uses two or more different prices for a product, even though there is no difference in the item’s cost • Buyer Identification – recognizes a buyer’s sensitivity • Product Design – create different prices for different product styles that do not reflect the cost of making the item, but the demand for a given style • Purchase Location – involves pricing according to where a product is sold and/or the location of the good or service • Time of Purchase – prices charged according to demand based on time of day

Psychological Pricing Strategies • Psychological Pricing – are pricing techniques that help create an illusion for customers • Odd-Even Pricing – involves setting prices that all end in either odd or even numbers • Odd numbers convey a bargain • Even numbers convey a quality image • Prestige Pricing – sets higher-than-average prices to suggest status and higher quality to the consumer • Multiple-Line Pricing – suggests a bargain and helps to increase sales volume • Everyday Low Prices (EDLP) – are low prices set on a consistent basis with no intention of raising then or offering discounts in the future

Promotional Pricing • Promotional Pricing – is generally used in conjunction with sales promotions where prices are reduced for a short period of time • Loss Leader Pricing – is used to increase store traffic by offering very popular items of merchandise for sale at below-cost prices • Special-Event – items are reduced in price for a short period of time, based on specific happenings • Rebates and Coupons • Rebates – are partial refunds provided by the manufacturer • Coupons – allow customers to take reductions at the time of purchase

Discounts and Allowances • Cash Discounts – are offered to buyers to encourage them to pay their bills quickly • Quality Discounts – are offered to buyers for placing large orders • Non-Cumulative – offered on one order • Cumulative – offered on all orders over a specified period of time • Trade Discounts– the way manufacturers quote prices to wholesalers and retailers • Seasonal Discounts – are offered to buyers willing to buy at a time outside the customary buying season • Allowances – go to directly to the buyer after a trade-in

Steps in Determining Prices Establish Pricing Objectives Determine Costs Estimate Demand Study Competition Decide on a Pricing Strategy Set Prices

Pricing Strategies