Chapter 11

Pricing Products:
Pricing Strategies

New Product Pricing

Strategies
Market
Market Skimming
Skimming

Market
Market Penetration
Penetration

> Setting a High

Price for a New
Product to
Maximize
Revenues from
the Target Market.

> Setting a Low

> Results in Fewer,

More Profitable
Sales.

Price for a New

Product in Order
to Attract a Large
Number of Buyers.

> Results in a Larger

Market Share.

Product Mix Pricing

Strategies
Product
Product Line
Line Pricing
Pricing

Setting
SettingPrice
PriceSteps
StepsBetween
BetweenProduct
ProductLine
LineItems
Items
i.e.
i.e.$299,
$299,$399
$399

Optional-Product
Optional-Product Pricing
Pricing

Product
Product
Mix
Mix
Pricing
Pricing
Strategies
Strategies

Pricing
Pricing Optional
Optionalor
orAccessory
AccessoryProducts
Products
Sold
Sold With
With The
TheMain
Main Product
Product
i.e.
i.e.Car
CarOptions
Options

Captive-Product
Captive-Product Pricing
Pricing

Pricing
Pricing Products
ProductsThat
ThatMust
MustBe
BeUsed
Used
With
With The
TheMain
Main Product
Product
i.e.
i.e.Razor
RazorBlades,
Blades,Film,
Film,Software
Software

By-Product
By-Product Pricing
Pricing

Pricing
PricingLow-Value
Low-ValueBy-Products
By-ProductsTo
ToGet
Get Rid
Rid
of
ofThem
Them
i.e.
i.e. Lumber
LumberMills,
Mills,Zoos
Zoos

Product-Bundle
Product-Bundle Pricing
Pricing

Pricing
Pricing Bundles
BundlesOf
OfProducts
ProductsSold
SoldTogether
Together
i.e.
i.e.Season
Season Tickets,
Tickets,Computer
ComputerMakers
Makers

Price-Adjustment
Strategies
Price
Price Adjustment
Adjustment Strategies
Strategies
Discount
Discount &
& Allowance
Allowance

Reducing
Reducing Prices
Pricesto
to Reward
Reward
Customer
Customer Responses
Responsessuch
suchas
as
Paying
PayingEarly
Earlyor
orPromoting
Promoting
the
theProduct.
Product.

Segmented
Segmented

Adjusting
Adjusting Prices
Pricesto
toAllow
Allow
for
for Differences
Differencesin
inCustomers,
Customers,
Products,
Products,or
orLocations.
Locations.

Cash
Cash Discount
Discount

Customer
Customer

Quantity
QuantityDiscount
Discount

Product
Product Form
Form

Functional
FunctionalDiscount
Discount

Location
Location

Seasonal
SeasonalDiscount
Discount

Time
Time

Trade-In
Trade-InAllowance
Allowance

Price-Adjustment
Strategies
Psychological Pricing

Promotional Pricing

Geographical Pricing

International Pricing

Adjusting Prices for Psychological

Effect.
Price Used as a Quality Indicator.
Temporarily Reducing Prices to
Increase Short-Run Sales.
i.e. Loss Leaders, Special-Events
Adjusting Prices to Account for the
Geographic Location of Customers.
i.e. FOB-Origin, Uniform-Delivered,
Zone Pricing, Basing-Point, &
Freight-Absorption.
Adjusting Prices for International
Markets.
Price Depends on Costs, Consumers,
Economic Conditions & Other Factors.

Initiating and Responding to Price

Changes
Competitor
Reactions
to
Price
Changes

Initiating
Price Cuts

Price
Changes
Buyer
Reactions
to
Price
Changes

Initiating
Price
Increases

Price-Adjustment
Price-Adjustment Strategies
Strategies
Has
HasCompetitor
Competitor Cut
Cut
Price?
Price?

No

Will
WillLower
LowerPrice
Price
Negatively
NegativelyAffect
Affect Our
Our
Market
MarketShare
Share&& Profits?
Profits?

No

Hold
HoldCurrent
CurrentPrice;
Price;
Continue
Continueto
toMonitor
Monitor
Competitors
CompetitorsPrice.
Price.

Reduce
ReducePrice
Price

Can/
Can/Should
ShouldEffective
Effective
Action
Actionbe
beTaken?
Taken?

No

Raise
RaisePerceived
Perceived
Quality
Quality

Yes

Improve
ImproveQuality
Quality
&& Increase
IncreasePrice
Price
Launch
LaunchLow-Price
Low-Price
Fighting
FightingBrand
Brand