Pricing Strategies

Pricing Strategies After deciding whether to use a cost-oriented, demand-oriented, or a competition-oriented policy, your company will develop a pricing strategy.

Pricing Strategies • Price lining • Bundle pricing • Geographical pricing • Psychological pricing • Prestige pricing • Everyday low pricing (ELDP) • Promotional Pricing

Price Lining • A store might charge $25, $35, and $50 for blouses to establish low, middle and high quality items. • Price differences must be great enough to represent different qualities.

Product Mix Strategies • Optional Products – Setting prices for accessories or options (example: cars) • Captive Products – Set price for a product low, but make supplies needed to run that product, high (example: printers) • By-product – Setting prices low for waste (example: Wood chips)

Bundle Pricing • Offering several complementary products in a package that is sold at a single price that is lower than the cost of buying each item separately • Advantage: Businesses can sell items that they may not have sold otherwise which increases sales and revenue

Geographical pricing • Adjusting the price of an item because of the location of the customer • Delivered price includes delivery charges • International pricing • Economic conditions • Exchange rate • Shipping • Tariffs • Consumers’ income levels and lifestyles

Psychological Pricing • Odd-even • Prestige • Multiple Unit • Everyday low price

Odd-even • Odd numbers convey a bargain • $19.99, $9.95, $.99 • Even numbers convey quality • $10, $50, $50.00

Prestige Pricing • Set a higher than average price to suggest status and high quality

Multiple-Unit • Pricing items in multiples suggests a bargain • Like 3 for $1.00, instead of $.34 each

ELDP (everyday low price) • Consistent low prices • Will not raise or lower price in the future • Not as deeply discounted as promotional pricing • Advantages • Creates stability • Reduced promotional expenses • Reduced losses due to discounting

Promotional Pricing • Loss Leader • Special event • Rebates • Coupons

Loss Leader • Below cost prices • Used to increase traffic • Used to increase sales in other products

Special Event • Items reduced in price for a short time based on a specific happening • Manufacturers offer special promotions to retailers that are willing to advertise or promote a manufacturer’s products

Rebates • Partial refunds from the manufacturer • Consumers need proof of purchase and store receipt • What is their hope? • Manufacturers also offer rebates to retailers and wholesalers • If you purchase a certain amount of goods prior to running a promotion

Coupons • Allow customers to take reductions at the time of purchase • Found where? • Hopefully, consumer will buy product just because they have a coupon.

Discounts and Allowances • Cash discounts • Quantity discounts • Trade discounts • Seasonal discounts • Special allowances

Cash Discounts • Offered to encourage quick payment • 2/10, n/30

Quantity Discounts • Place a large order, get a discount • Non-cumulative offered per order (the more you buy, the larger the discount) • Cumulative offered over a specified period of time (6 months) OR • Buyers might sign a contract agreeing to buy a certain amount • Example: Advertisers who agree to use a certain amount of newspaper columns might be charged cheaper rates

Seasonal Discounts • Discount for buying out of season • Manufacturers use to obtain orders • Retailers use to reduce cost of storage

Allowances • Go directly to the buyer • Offered a price reduction to sell back an old model

Trade Discounts • Not really discounts at all • Prices quoted to retailers and wholesalers • Percentage discount from list price or manufacturer’s suggested retail price

Set Prices • Based on all the information in the first five steps of price setting, a company sets a price for its product.

Pricing Strategies