Pricing StrategiesObjectivesSlide 3Slide 3DefinitionsSlide 6Slide 6Product Mix Pricing StrategiesSlide 9Slide 10Slide 10Slide 12Slide 13Price Adjustment StrategiesSlide 14Slide 16Slide 17Slide 18Slide 18Slide 20Slide 21Slide 21Slide 23Slide 24Slide 24BusinessNowPrice ChangesSlide 28Slide 29Slide 30Slide 31Slide 32Slide 32Slide 33Public Policy and PricingSlide 36Pricing Pricing StrategiesStrategiesChapter 12Chapter 1212- 2ObjectivesLearn the major strategies for Learn the major strategies for pricing imitative and new pricing imitative and new products.products.Understand how companies find Understand how companies find a set of prices that maximizes a set of prices that maximizes the profits from the total the profits from the total product mix.product mix.12- 3ObjectivesLearn how companies adjust Learn how companies adjust their prices to take into their prices to take into account different types of account different types of customers and situations.customers and situations.Know the key issues related Know the key issues related to initiating and responding to to initiating and responding to price changes.price changes.12- 4Price is #1 factor Price is #1 factor influencing choice of influencing choice of cellular companiescellular companiesPrices in wireless Prices in wireless industry dropped 25% in industry dropped 25% in three yearsthree years Few companies were Few companies were profitableprofitablemLife ad campaign mLife ad campaign attempted to build the attempted to build the AT&T wireless brand so AT&T wireless brand so consumers would consumers would consider value rather consider value rather than just pricethan just priceCampaign met with Campaign met with strong initial successstrong initial success cAT&TAT&T Wireless Wireless12- 5DefinitionsMarket-Skimming PricingMarket-Skimming PricingSetting a high price Setting a high price for a new product to for a new product to skim maximum skim maximum revenues layer by revenues layer by layer from segments layer from segments willing to pay the willing to pay the high price.high price.12- 6DefinitionsMarket-Penetration PricingMarket-Penetration PricingSetting a low price Setting a low price for a new product for a new product in order to attract in order to attract a large number of a large number of buyers and a large buyers and a large market share.market share.12- 7Which pricing strategy does Dell appear to use?12- 8Product Line PricingProduct Line PricingSetting price steps between Setting price steps between product line items.product line items. Price pointsPrice pointsProduct Mix Pricing Strategies12- 9Optional-Product PricingOptional-Product PricingPricing optional or Pricing optional or accessory products sold accessory products sold with the main productwith the main productSupplemental software, Supplemental software, digital cameras, and digital cameras, and printers sold with a new printers sold with a new PC are examplesPC are examplesProduct Mix Pricing Strategies12- 10Captive-Product PricingCaptive-Product PricingPricing products that must Pricing products that must be used with the main be used with the main productproduct High margins are often High margins are often set for supplies set for suppliesServices: two-part pricing Services: two-part pricing strategystrategy Fixed fee plus a Fixed fee plus a variable usage rate variable usage rateProduct Mix Pricing Strategies12- 11Country clubs are an Country clubs are an example of entities example of entities that use a two-part that use a two-part pricing strategy.pricing strategy.Name some other Name some other examples.examples. Discussion Question12- 12By-Product By-Product PricingPricingPricing of Pricing of low-value low-value by-products by-products to get rid of to get rid of themthemProduct Mix Pricing Strategies12- 13Product Bundle Product Bundle PricingPricingPricing bundles of Pricing bundles of products sold products sold togethertogetherCommon in fast Common in fast food industryfood industryProduct Mix Pricing Strategies12- 14Price Adjustment StrategiesTypes of discountsTypes of discountsCash discountCash discountQuantity discountQuantity discountFunctional (trade) Functional (trade) discountdiscountSeasonal discountSeasonal discountAllowancesAllowancesTrade-in allowancesTrade-in allowancesPromotional Promotional allowancesallowancesDiscount / Discount / allowance allowance SegmentedSegmentedPsychologicalPsychologicalPromotionalPromotionalGeographicalGeographicalInternationalInternationalStrategiesStrategies12- 15Hotels offer seasonal Hotels offer seasonal discounts during slow discounts during slow sales periods. sales periods. What are some other What are some other examples of products examples of products or services that could or services that could benefit from a seasonal benefit from a seasonal pricing strategy?pricing strategy?Discussion Question12- 16Price Adjustment StrategiesTypes of segmented Types of segmented pricing strategies:pricing strategies:Customer-segmentCustomer-segmentProduct-form pricingProduct-form pricingLocation pricingLocation pricingTime pricingTime pricingAlso called revenue or Also called revenue or yield managementyield managementCertain conditions Certain conditions must exist for must exist for segmented pricing to segmented pricing to be effectivebe effectiveDiscount / Discount / allowanceallowance SegmentedSegmentedPsychologicalPsychologicalPromotionalPromotionalGeographicalGeographicalInternationalInternationalStrategiesStrategies12- 17Price Adjustment StrategiesConditions Necessary for Conditions Necessary for Segmented Pricing Effectiveness Segmented Pricing Effectiveness Market can be Market can be segmentedsegmentedLower priced segments Lower priced segments are not able to resell to are not able to resell to higher priced segmentshigher priced segmentsCompetitors can not Competitors can not undersell segments undersell segments charging higher pricescharging higher pricesPricing must be legalPricing must be legalCosts of segmentation Costs of segmentation can not exceed can not exceed revenues earnedrevenues earnedSegmented pricing Segmented pricing must reflect real must reflect real differences in buyers’ differences in buyers’ perceived valueperceived value12- 18Price Adjustment StrategiesThe price is used to say The price is used to say something about the something about the product.product.Price-quality