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Strategic Pricing: AEM 4160

Strategic Pricing: AEM 4160. http://faculty.cit.cornell.edu/jl2545/teaching.htm. Bundling. Time-Warner Cable NY offers many packages of its services. Microsoft bundles MS Word and MS Excel into a package MS Office. Theaters bundle single tickets with seasonal packages.

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Strategic Pricing: AEM 4160

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  1. Strategic Pricing: AEM 4160 http://faculty.cit.cornell.edu/jl2545/teaching.htm

  2. Bundling • Time-Warner Cable NY offers many packages of its services. • Microsoft bundles MS Word and MS Excel into a package MS Office. • Theaters bundle single tickets with seasonal packages. • Why don’t they just offer a smorgasbord of services/products, each at a price, and let you buy the ones you want?

  3. Two-Part Tariff • “Membership discount retailers" such as shopping clubs. • Cover charge for bars combined with per drink fees. • Landline telephones where there is a fee to use the service ('line rental') and also a fee per call. • Personal seat licenses in professional sports, in which fans of a team pay an up-front lump sum fee for the right to purchase tickets at face value. • Menu of two part tariffs or menu of price-quantity bundles (e.g. cell phone plans) – which is more profitable?

  4. Versioning • Intuit, a software company, offers: • TurboTax for US$29.95 and • TurboTax Deluxe, which includes additional features including "more money saving advice" and Internal Revenue Service publications for $39.95.

  5. Crimped or Damaged Good Pricing • Companies with market power occasionally engage in intentional quality reduction. • Sharp sells many DVD players, including two with model numbers DVE611 and DV740U (now discontinued). • A major difference between these units, is that one is able to play PAL DVD discs. • The DV740U device lacks the ability to play PAL discs and still output to an NTSC television. • Or does it? • In fact, the DC740U has the ability to play PAL discs, but this facility is suppressed by using a different plastic cover on the remote.

  6. Price Matching Guarantee • A price-matching policy seems the epitome of cutthroat competition. • What could be more competitive than seller’s guarantee of lowest price? • However… • Under the cover of a matching offer, firm can price-discriminate poorly informed buyers. • Several studies, have argued and shown that some sellers use PMGs as a device for facilitating tacit collusion.

  7. Psychological Pricing • ~ 60% of prices in advertising material end in the digit 9 • 30% end in the digit 5 • 7% end in the digit 0 • The remaining seven digits combined accounted for only ~ 3% of prices. • Why? Many Theories… • Consumers subconsciously ignore the least significant digits rather than do the proper rounding.

  8. How to Price • So many pricing strategies exist! • How to figure out how to segment the individuals? • How to ensure that consumers self select (in terms of menu offered prices) in the most profitable way? • Is one pricing strategy more profitable than another?

  9. Common Mistakes in Pricing • Cost-Plus approach • Charging the same price for everyone • Undercut Competitors’ price • And many more…

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