Chapter 30 – Pricing Strategies

Three Pricing Strategies

• Cost Oriented Pricing–Markup Pricing–Cost Plus Pricing

• Demand Oriented Pricing• Competition Oriented Pricing

–Competitive Bid–Going-Rate PricingBusiness tend to use all three in making a decision!

One Price vs. Flexible Pricing

• One Price Policy – when all customers are charged the same price for the goods and services offered for sale.– Price Tags

• Flexible – Price Policy – permits customers to bargain for merchandise.– Rarely used for legal reasons.– Used for Cars, antiques, furniture etc…

Product Life Cycle

• Introduction• Growth• Maturity• Decline

Introduction

GrowthMaturity

Decline

PLC - Introduction

When a product is first being introduced, one of two strategies may be used….

• Skimming Pricing– Sets the price very high to create demand.– Usually when there are few competitors

• Penetration Pricing– Initial Price is very low to attract many

customers.– Used when there is lots of competition and when substitutes are available.

PLC - Growth Stages

• Growth Stage – is the period when sales are highest and the product is gaining popularity.– If Skimming Pricing was used in the

Introduction Stage, then the price needs to be monitored and lowered when the sales begin to drop.

– If Penetration Pricing was used, then very little will be done regarding the price.

PLC – Maturity Stage

• Marketers main goal during the Maturity Stage is to stretch the life of a product. Sales at this stage have started to level off.– Revitalize the Product– Find new Markets

PLC – Decline Stage

• During this stage, sales decrease and profit margins are reduced.

• During this stage, marketers try to reduce the costs of manufacturing, advertising etc…

• Once the product is no longer profitable, the product is phased out.

Pricing Techniques

• Psychological Pricing– Odd Even Pricing – 199.99 vs $200.

Odd numbers convey a bargain, even numbers convey quality.

– Prestige Pricing – setting prices higher than average to convey status or prestige.

– Multiple Pricing – 3 for $.99 is more effective than selling items at $.33 each.

– Promotional Pricing – usually used in conjunction with sales promotional when prices are lower than average.

Discount Pricing

• Cash Discounts – discounts are offered to buyers if they pay their bill on time. For example 2/10 net 30. 2% discount if paid in 10 days.

• Quantity Discounts – when placing a large order quantities are given.

• Seasonal Discounts – are offered to buyers who are willing to buy in advance of the customary buying season.

• Promotional Discounts and Allowances – offered to wholesalers and retailers who are willing to advertise or promote a manufacturer’s products.