Pricing Product: Pricing Strategies I. New Product Pricing Strategies: a.

Price Quality Strategies Price Premium Pricing Strategy Overcharging Strategy Good Value Strategy Economy Strategy

Quality

Premium Pricing Strategy high quality roduct and charging the highest rice Good Value Strategy re resent a way to attac! remium ricing """ Producing high quality roduct #ut charge lower remium riced roducts Overcharging Strategy overcharging its roduct in relation to its quality Economy Strategy Producing a good quality roduct #ut charging a low rice #. Market Skimming Pricing Setting high rice $or new roducts to s!im ma%imum revenue layer #y layer $rom the segments willing to ay the high rice & lica#le under some o$ the #elow conditions: - 'he roduct(s quality and image must su ort its higher rice and enough #uyers willing to ay $or its high rice - 'he cost o$ roducing a smaller volume is not high so that it will not ta!e away the advantage o$ charging the high rice - )om etitor should not #e a#le to enter easily to undercut the rice Market Penetration Pricing setting a low rice $or a new roduct to attract large num#er o$ #uyer and #ig mar!et share & lica#le under some o$ the conditions #elow: - 'he mar!et must #e highly rice sensitive - 'he roduction and distri#ution cost must $all as sales volume increase - *ow rice must hel !ee out the com etition and the enetration ricer must maintain its low rice osition

c.

II.

Product +i% Pricing Strategies: a. Product *ine Pricing setting the rice ste s #etween various roduct in a roduct line #ased on the $ollowing: - )ost di$$erence #etween the roducts - )ustomers( evaluation o$ di$$erent $eature - )om etitors( rice E%am le: ,owny Sunrise- ,owny &nti".acteria- ,owny /"#anlaw- ,owny Passion 0all in the same roduct line #ut with di$$erent rice1 #. O tional Product Pricing ricing o$ o tional or accessory roducts sold with the main roduct. - E%am le: +o#ile Phone2)ell hone 0main roduct1 3 charger 0o tional roduct1 3 #attery 0o tional roduct1 3 casing 0o tional roduct1 3 head set 0o tional roduct1 )a tive Product Pricing setting rice $or roducts that must #e used along with the main roducts - E%am les: .lade $or ra4ors- & le com uter and other & le gadgets such as I"Phone- I" od- I" 'ouch- Printer and its cartridge In the case of service this strategy is called !t"o#$art $ricing% & the $rice of the service is 'roken into a fi(ed usage fee and a varia'le fee " E%am le: amusement ar! charging a general entrance $ee- then they will charge se arately the $ood- rides inside and some other midway attractions. 'ele hone com any charge a monthly service $ee 3 call #eyond some minimum num#ers such as national direct dial 0N,,1 or International ,irect ,ial 0I,,1 .y" roduct Pricing setting a rice $or #y" roducts in order to ma!e main roduct(s rice more com etitive - E%am les: Petroleum gasoline 0main roduct1- !erosene 0#y roduct1- &s halt 0#y roduct1 5oo &ttraction 0main roduct1- manure o$ animals 0#y roduct #eing sold as organic $ertili4er to the $arms.1 Product #undle ricing setting a rice $or com#ination o$ several roducts and o$$er the #undle at a discounted or reduced rice - E%am les: hotel sells ac!ages that includes room accommodation- meals and some entertainment at a discounted rice

c.

d.

e.

III.

Price &d6ustment Strategies: a. ,iscounts and &llowance Pricing rice ad6ustment to reward customer $or certain res onses. /. )ash discounts a rice reduction to reward customer who ays their #ill rom tly 7. 8uantity discounts a rice reduction to reward #uyers who #uy in large volume 9. :unctional discounts a rice reduction o$$ered #y the seller to trade channel mem#er who er$orm certain $unctions such as selling- storing- record !ee ing ;. Seasonal discounts a rice reduction to #uyers who #uy merchandise or services out o$ season 0e%am le: airline and hotels o$$ering discounted rice tic!ets during lean season o$ travel1 <. &llowances romotional money aid #y manu$acturer to retailer in return $or an agreement to $eature the manu$acturer(s roduct in some way. 0e%am les: trade"in allowance- romotional allowance1 #. Segmented Pricing Selling a roduct or services at two or more rice- where the di$$erence in rices is not #ased on di$$erence in cost. /. )ustomer segment ricing di$$erent customer ay di$$erent rice $or the same roduct or services 0e%am le: Su ercat charging students and senior at a lower rate com ared to $ull $are rice= +useum o$$ering senior citi4en rate and children(s rate1 7. Product $orm ricing di$$erent version o$ the roduct are riced di$$erently- #ut not according to di$$erence in their cost 0E%am le: sham oo in the lastic #ottle and sham oo in the lastic sachet ac!s- #attery in a card#oard ac!aging or #attery in a #lister ac!aging $orm1 9. *ocation ricing the com any charge di$$erent location at di$$erent rice although the cost o$ roviding the service is the same 0E%am le: Su ercat charging a lower $are $or o en air seats and higher $are $or air"conditioned room- airline charging remium rice $or #usiness class seats and lower rice $or economy seats1 ;. 'ime ricing charging di$$erent rice $or the service at di$$erent time o$ the hour- day- month or season 0e%am le: o$$ season sales $or clothing- lean season sales in the tourism industrywee!end rice and wee!days rice o$ the amusement ar!s- ea! hour rate and o$$ ea! rate $or the tele hone services1 )ote: for segmented $ricing to 'e effective certain condition must e(ist such as: - 'he mar!et must #e segmenta#le and the segment must show di$$erent degree o$ demand - +em#er o$ the segment aying a lower rice must not #e ale to turn around and resell the roduct to the segment aying the higher rice - )om etitor should not #e a#le to undersell the $irm in the segment #eing charged with the higher rice - 'he segmented ricing must #e legal - 'he segmented rice must re$lect the real di$$erence in customers( erceived value. Psychological Pricing a ricing a roach that considers the sychology o$ rices and not sim ly the economics. 0note: $or some eo le who !nows little a#out the roduct they are a#out to urchase- rice #ecome a very im ortant indicator $or quality.1 Promotional Pricing tem orarily ricing roducts #elow the listed rice or some times even #elow the cost to increase short run sales. Geogra hical Pricing &d6usting rice to accounts $or the geogra hical location o$ the customers :unctions > ,e$initions " Goods are laces $ree on #oard o$ the carrier- the customer ays the actual $reight $rom the $actory to the destination - 'he com any charge the same rice lus the $reight cost to all customers regardless o$ their location &dvantages " $airest way to assess $reight charge :airly easy to administer *et the com any advertise its rice ,isadvantages " 'he roduct will #ecome high cost to distant customers " some customer will charge higher $reight cost than actual cost and some customer will charge lower $reight cost than

c. d. e.

Geogra hical Pricing Strategies :O. Origin Pricing

?ni$orm ,elivered Pricing

5one Pricing

.asing Point Pricing -

:reight &#sor tion Pricing

'he o osite o$ :O. 'he com any sets u two or more 4ones and all customers within a given 4one ay a single total rice. 'he more distant the 4onethe higher the rice :alls #etween :O. and ?ni$orm ,elivered rice 'he seller select a given city as a #ase oint and charges all customer the $reight cost $rom that city to the customer location- regardless o$ the city $rom which the goods are actually shi ed 'he seller a#sor#s all or art o$ the actual $reight charges in order to get the #usiness

nationally "

the actual

" delivered rice would #e the same $or all customers and rice com etition will #e eliminated

Good $or mar!et enetration Good $or hold on to increasingly com etitive mar!et

IV.

Price changes &$ter develo ing the ricing structure and rice strategies- com anies o$ten $ace situations in which they must initiate rice change or res ond to rice change. Possi#le @easons: - E%cess )a acity - :alling mar!et share in the $ace o$ strong rice com etition - 'o dominate mar!et through lower cost - )ost in$lation - Over demand &dvantages: " .oost sales ,isadvantages: " *ead to rice war

Price )hange &. Initiate Price )ut

.. Initiate Price increase

Increase revenue

*ead to customerdealer and even their own sale $orce(s resentment

Notes: #elow are some ways to increase rice without consumer noticing it: /. ,ro ing discounts and adding higher" riced units to the line 7. Shrin! the roduct instead o$ raising its rice 9. Su#stitute less e% ensive ingredients or remove certain roduct $eatures- ac!aging- or services ;. ?n#undle its roduct and services- removing or se arately ricing elements that were $ormerly art o$ the o$$er *o" to res$ond to a $rice change /. E%ternal &nalysis " 'he com any needs to analy4e the reasons- intentions and resources o$ the com etitor to initiate a rice change such as: a. Aas it to increase mar!et shareB #. Aas it to use e%cess ca acity to meet changing cost conditionB c. Aas it to lead an industry wide rice changeB d. Is the rice change tem orary or ermanentB e. &re other com anies going to res ondB 7. Internal &nalysis " 'he com any needs to ma!e some sel$ evaluation such as: a. Ahat will ha en to com any(s mar!et share and ro$it i$ it does nor res ondB #. Products stage in the li$e"cycle c. 'he roducts im ortance in the com any(s roduct mi% d. Possi#le consumer reaction to the rice change :our ossi#le res onses to the rice change: /. @educe its rice to match the com etitor(s rice 7. @aise the erceived quality o$ its o$$er

9. ;.

Im rove quality and increase its rice *aunch a low" riced $ighting #rand