12 - 0,Pricing Strategies,Chapter 12,12 - 1,Objectives,Learn the major strategies for pricing imitative and new products. Understand how companies find a set of prices that maximizes the profits from the total product mix.,12 - 2,Objectives,Learn how companies adjust their prices to take into account different types of customers and situations. Know the key issues related to initiating and responding to price changes.,12 - 3,Price is #1 factor influencing choice of cellular companies Prices in wireless industry dropped 25% in three years Few companies were profitable,mLife ad campaign attempted to build the AT&T wireless brand so consumers would consider value rather than just price Campaign met with strong initial success,mLife: AT&T Wireless,Case Study,12 - 4,Definitions,Market-Skimming Pricing Setting a high price for a new product to skim maximum revenues layer by layer from segments willing to pay the high price.Market-Penetration Pricing Setting a low price for a new product in order to attract a large number of buyers and a large market share.,12 - 5,Product Line Pricing Setting price steps between product line items.Price points Optional-Product Pricing Pricing optional or accessory products sold with the main product,Product Mix Pricing Strategies,12 - 6,Captive-Product Pricing Pricing products that must be used with the main productHigh margins are often set for supplies Services: two-part pricing strategyFixed fee plus a variable usage rate,Product Mix Pricing Strategies,12 - 7,By-Product Pricing Pricing low-value by-products to get rid of them Product Bundle Pricing Pricing bundles of products sold together,Product Mix Pricing Strategies,12 - 8,Price Adjustment Strategies,Discount / allowance Segmented Psychological Promotional Geographical International,Types of discounts Cash discount Quantity discount Functional (trade) discount Seasonal discount Allowances Trade-in allowances Promotional allowances,Strategies,12 - 9,Price Adjustment Strategies,Discount / allowance Segmented Psychological Promotional Geographical International,Types of segmented pricing strategies: Customer-segment Product-form pricing Location pricing Time pricing Also called revenue or yield management Certain conditions must exist for segmented pricing to be effective,Strategies,12 - 10,Conditions Necessary for Segmented Pricing Effectiveness,Price Adjustment Strategies,Market is segmentable Lower priced segments are not able to resell Competitors can not undersell segments charging higher prices,Pricing must be legal Costs of segmentation can not exceed revenues earned Segmented pricing must reflect real differences in customers perceived value,12 - 11,Price Adjustment Strategies,Discount / allowance Segmented Psychological Promotional Geographical International,The price is used to say something about the product. Price-quality relationship Reference prices Differences as small as five cents can be important Numeric digits may have symbolic and visual qualities that psychologically influence the buyer,Strategies,12 - 12,Price Adjustment Strategies,Discount / allowance Segmented Psychological Promotional Geographical International,Temporarily pricing products below the list price or even below cost Loss leaders Special-event pricing Cash rebates Low-interest financing, longer warranties, free maintenance Promotional pricing can have adverse effects,Strategies,12 - 13,Promotional Pricing Problems,Price Adjustment Strategies,Easily copied by competitors Creates deal-prone consumers May erode brands value,Not a legitimate substitute for effective strategic planning Frequent use leads to industry price wars which benefit few firms,12 - 14,Price Adjustment Strategies,Discount / allowance Segmented Psychological Promotional Geographical International,Types of geographic pricing strategies: FOB-origin pricing Uniform-delivered pricing Zone pricing Basing-point pricing Freight-absorption pricing,Strategies,12 - 15,Price Adjustment Strategies,Discount / allowance Segmented Psychological Promotional Geographical International,Prices charged in a specific country depend on many factors Economic conditions Competitive situation Laws / regulations Distribution system Consumer perceptions Cost considerations,Strategies,12 - 16,Initiating Price Cuts is Desirable When a Firm: Has excess capacity Faces falling market share due to price competition Desires to be a market share leader,Price Changes,12 - 17,Price Increases are Desirable: If a firm can increase profit, faces cost inflation, or faces greater demand than can be supplied. Methods of Increasing Price Alternatives to Increasing Price Reducing product size, using less expensive materials, unbundling the product.,Price Changes,12 - 18,Buyer reactions to price changes must be considered. Competitors are more likely to react to price changes under certain conditions. Number of firms is small Product is uniform Buyers are well informed,Price Changes,12 - 19,