Chapter Eleven
Pricing Strategies
Chapter 11- slide 1
Pricing Strategies
Topic Outline
New-Product Pricing
Strategies
Product Mix Pricing
Strategies
Price Adjustment
Strategies
Price Changes
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Chapter 11- slide 2
New-Product Pricing Strategies
Pricing Strategies
Marketskimming
pricing
Marketpenetration
pricing
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Publishing as Prentice Hall
Chapter 11- slide 3
New-Product Pricing Strategies
Market-skimming pricing is a strategy with
high initial prices to skim revenue layers
from the market
Product quality and image must support the
price
Buyers must want the product at the price
Costs of producing the product in small volume
should not cancel the advantage of higher prices
Competitors should not be able to enter the
market easily
Copyright 2010 Pearson Education, Inc.
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Chapter 11- slide 4
New-Product Pricing Strategies
Pricing Strategies
Market-penetration pricing sets a low
initial price in order to penetrate the
market quickly and deeply to attract a
large number of buyers quickly to gain
market share
Price sensitive market
Inverse relationship of production and
distribution cost to sales growth
Low prices must keep competition out of
the market
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Publishing as Prentice Hall
Chapter 11- slide 5
Product Mix Pricing Strategies
Pricing Strategies
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Chapter 11- slide 6
Product Mix Pricing Strategies
Pricing Strategies
Product line pricing takes into account
the cost differences between products
in the line, customer evaluation of
their features, and competitors prices
Optional-product pricing takes into
account optional or accessory products
along with the main product
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Chapter 11- slide 7
Product Mix Pricing Strategies
Pricing Strategies
Captive-product
pricing involves
products that must
be used along with
the main product
Two-part pricing
involves breaking
the price into:
Fixed fee
Variable usage fee
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Chapter 11- slide 8
Price Mix Pricing Strategies
Pricing Strategies
By-product pricing refers to
products with little or no value
produced as a result of the main
product. Producers will seek little
or no profit other than the cost to
cover storage and delivery.
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Chapter 11- slide 9
Price Mix Pricing Strategies
Pricing Strategies
Product bundle pricing combines
several products at a reduced
price
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Chapter 11- slide 10
Price-Adjustment Strategies
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Chapter 11- slide 11
Price-Adjustment Strategies
Pricing Strategies
Discount and allowance pricing
reduces prices to reward customer
responses such as paying early or
promoting the product
Discounts
Allowances
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Chapter 11- slide 12
Price-Adjustment Strategies
Pricing Strategies
Segmented pricing is used
when a company sells a product at
two or more prices even though
the difference is not based on cost
Copyright 2010 Pearson Education, Inc.
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Chapter 11- slide 13
Price-Adjustment Strategies
Pricing Strategies
Segmented Pricing
To be effective:
Market must be segmentable
Segments must show different degrees of
demand
Watching the market cannot exceed the
extra revenue obtained from the price
difference
Must be legal
Copyright 2010 Pearson Education, Inc.
Publishing as Prentice Hall
Chapter 11- slide 14
Price-Adjustment Strategies
Pricing Strategies
Psychological pricing occurs when
sellers consider the psychology of
prices and not simply the economics
Reference prices are prices that buyers
carry in their minds and refer to when
looking at a given product
Noting current prices
Remembering past prices
Assessing the buying situations
Copyright 2010 Pearson Education, Inc.
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Chapter 11- slide 15
Price-Adjustment Strategies
Pricing Strategies
Promotional pricing is when prices are
temporarily priced below list price or cost
to increase demand
Loss leaders
Special event pricing
Cash rebates
Low-interest financing
Longer warrantees
Free maintenance
Copyright 2010 Pearson Education, Inc.
Publishing as Prentice Hall
Chapter 11- slide 16
Price-Adjustment Strategies
Pricing Strategies
Risks of promotional pricing
Used too frequently, and copies by
competitors can create dealprone customers who will wait for
promotions and avoid buying at
regular price
Creates price wars
Copyright 2010 Pearson Education, Inc.
Publishing as Prentice Hall
Chapter 11- slide 17
Price-Adjustment Strategies
Pricing Strategies
Geographical pricing is used for
customers in different parts of the
country or the world
FOB-origin pricing
Uniformed-delivered pricing
Zone pricing
Basing-point pricing
Freight-absorption pricing
Copyright 2010 Pearson Education, Inc.
Publishing as Prentice Hall
Chapter 11- slide 18
Price-Adjustment Strategies
Pricing Strategies
FOB-origin (free on board) pricing
means that the goods are delivered to
the carrier and the title and
responsibility passes to the customer
Uniformed-delivered pricing
means the company charges the
same price plus freight to all
customers, regardless of location
Copyright 2010 Pearson Education, Inc.
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Chapter 11- slide 19
Price-Adjustment Strategies
Pricing Strategies
Zone pricing means that the company
sets up two or more zones where
customers within a given zone pay a
single total price
Basing-point pricing means that a
seller selects a given city as a basing
point and charges all customers the
freight cost associated from that city to
the customer location, regardless of the
city from which the goods are actually
shipped
Copyright 2010 Pearson Education, Inc.
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Chapter 11- slide 20
Price-Adjustment Strategies
Pricing Strategies
Freight-absorption pricing
means the seller absorbs all or
part of the actual freight charge
as an incentive to attract business
in competitive markets
Copyright 2010 Pearson Education, Inc.
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Chapter 11- slide 21
Price-Adjustment Strategies
Pricing Strategies
Dynamic pricing is when
prices are adjusted
continually to meet the
characteristics and needs
of the individual customer
and situations
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Publishing as Prentice Hall
Chapter 11- slide 22
Price-Adjustment Strategies
Pricing Strategies
International pricing is when prices are set
in a specific country based on countryspecific factors
Economic conditions
Competitive conditions
Laws and regulations
Infrastructure
Company marketing
objective
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Chapter 11- slide 23
Price Changes
Initiating Pricing Changes
Price cuts
Price
increases
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Chapter 11- slide 24
Price Changes
Initiating Pricing Changes
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Chapter 11- slide 25
Price Changes
Buyer Reactions to Pricing Changes
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Chapter 11- slide 26
Price Changes
Responding to Price Changes
Questions
Why did the competitor change the
price?
Is the price cut permanent or
temporary?
What is the effect on market share
and profits?
Will competitors respond?
Copyright 2010 Pearson Education, Inc.
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Chapter 11- slide 27
Price Changes
Responding to Price Changes
Solutions
Reduce price to match competition
Maintain price but raise the perceived
value through communications
Improve quality and increase price
Launch a lower-price fighting brand
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Chapter 11- slide 28
Price Changes
Responding to Price Changes
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Chapter 11- slide 29
Public Policy and Pricing
Price competition is a core
element of our free-market economy.
In setting prices, companies usually
are not free to charge whatever
prices they wish. Many laws govern
the rules of fair play in pricing.
The Monopolies and Restrictive
Trade Practices (MRTP) Act, 1969
The Competition Act, 2002
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Chapter 11- slide 30
Public Policy and Pricing
Salient features of the Competition
Act:
anti-competitive agreements
prohibition of abuse of dominant
positions by an enterprise
regulation of combinations such as
acquisitions, mergers, joint ventures,
takeovers, and amalgamations
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Chapter 11- slide 31
Public Policy and Pricing
Under the MRTP Act, acts such as
misleading consumers about the
prices at which goods and services are
available in the market and false
offers of bargain prices are considered
to be unfair trade practices
The Consumer Protection Act, 1986
(amended in 2002), also safeguards
the interests of consumers
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Chapter 11- slide 32
Public Policy and Pricing
Predatory pricing, or selling and
providing services with the
intention of reducing competition
or eliminating competitors, is not
permissible under the MRTP Act or
the Competition Act.
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Chapter 11- slide 33
Public Policy and Pricing
With
advancements
in technology,
additional
concerns, such
as scanner
fraud, are on
the rise.
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Chapter 11- slide 34
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retrieval system, or transmitted, in any form or by any means, electronic,
mechanical, photocopying, recording, or otherwise, without the prior written
permission of the publisher. Printed in the United States of America.
Copyright 2010 Pearson Education, Inc.
Publishing as Prentice Hall
Copyright 2010 Pearson Education, Inc.
Publishing as Prentice Hall
Chapter 11- slide 35
