Determines the final price to charge by starting with costs.
Sets prices to signal information of how a product compares to that of competitors.
– Premium Pricing
– Price Wars
Setting prices that focus on the overall value of a product.
– Improvement Value Method
– Cost of Ownership Model
Value-based Method: Improvement Value Method
An estimate on how much more (or less) consumers are willing to pay for a product relative to other comparable products.
Value-based Method: Cost of Ownership Model
Consumers may be willing to pay more for a particular product because, over its lifetime, it will eventually cost loess to own than a cheaper alternative.
(Common) Pricing Strategy: Everyday Low Pricing (EDLP)
Stress the continuity of their retail prices at a level somewhere between the regular, non-sale price and the deep-discount sale prices their competitors may offer.
– Reduces search costs, which adds value.
– Odd prices may be appropriate.
– Odd price may suggest low quality or good ideal.
(Common) Pricing Strategy: High/Low Pricing
Relies on the promotion of sales, during which prices are temporarily reduced to encourage purchases.
– Provides the thrill of the chase for the lowest price.
Attracts (2) market segments:
1. Price sensitive
2. Price insensitive
The seller labels reference prices as the “regular price” or an “original price.” When the customers view the “sales price” and compare it with the provided reference price, their perceptions of the value of the deal will likely increase.
(New Product) Pricing Strategy: Price Skimming
Price skimming appeals to these segments of consumers (innovators and early adopters) who are willing to pay the premium price to have the innovation first.
(New Product) Pricing Strategy: Market Penetration Pricing
Firm sets the initial price low for the introduction of the new product or service. The objective is to build sales, market share, and profits quickly.
A long-term approach to setting prices broadly in an integrative effort (across all the firm’s products) based on the 5 Cs.
Short-term methods to focus on select components of the 5 Cs.
Reductions retailers take on the initial selling price of the product or service.
The most common implementation of a quantity discount at the consumer level is the size discount.
Price reductions offered to stimulate demand during off-peak seasons.
Discount on the price of specific items when they’re purchased.
– “Instant savings.”
– May covert first time uses into regular users.
– Do little to increase store loyalty.
Another form of discounts for customers, off the final selling price. The manufacturer, instead of the retailer, issues the refund as a portion of the purchase price returned to the buyer in form of cash.
– “Savings mailed at later dates.”
Consumers pay a fee to purchase the right to use a product for a specific amount of time.
– Leasing products opens new, less price sensitive, target markets.
Selling more than one product for a single, lower price. When you signed up for your high-speed Internet connection, did you also get cable TV and telephone?
– Helps consumers stock up on a product.
– A slower-moving less demanded item is bundled with a more desirable item.
(Loss) Leader pricing
Building store traffic by aggressively pricing and advertising a regularly purchased item.
The rationale behind this tactic argues that, while in the store to get the great deal on milk, the consumer will also probably pick up other items, which sell as a higher profit margin.
Marketers establish a floor price and a price ceiling for an entire line of similar products.