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PricingPricingStrategiesStrategies

BBI2 – Introduction to BusinessAdapted from an original PPT by

Sameer Mathur, Ph.D.Assistant Professor (Marketing), McGill University

PricePrice

Many NamesMany Names

Low High

Low

High

EconomyPricing

Market Penetration

Market Skimming

PremiumPricing

Price

Quality

Pricing StrategiesPricing Strategies

Market SkimmingMarket Skimming

Applies to new, distinctive products, Applies to new, distinctive products, early in the Product Life Cycleearly in the Product Life Cycle

Market SkimmingMarket Skimming

•Most consumer electronic products

•The iPod was priced $259 in 2004.

Captive Product PricingCaptive Product Pricing

Two Pricing MistakesTwo Pricing Mistakes

Economy Economy PricingPricing

PremiumPremiumPricingPricing

Price Adjustment StrategiesPrice Adjustment Strategies

• Discount / allowance • Segmented• Psychological• Promotional

• Types of discounts– Cash discount– Quantity discount– Seasonal discount

• Allowances– Trade-in allowances– Promotional allowances

StrategiesStrategies

Quantity Discounts in Public TransportQuantity Discounts in Public Transport

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Two-part TariffsTwo-part Tariffs

Total Price = Retail Price + Shipping PriceTotal Price = Retail Price + Shipping Price

Seasonal Seasonal DiscountDiscount

ss

Trade Trade In In

(Pure) Bundling(Pure) Bundling

(Mixed) (Mixed) BundlingBundling

Price Adjustment StrategiesPrice Adjustment Strategies

• Discount / allowance • Segmented• Psychological• Promotional

• Types of segmented pricing strategies:– Product-line pricing– Location pricing– Time pricing

• Also called revenue or yield management

• Certain conditions must exist for segmented pricing to be effective

StrategiesStrategies

Pricing a Pricing a Product-Line Product-Line

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Product Lines in IndiaProduct Lines in India

High Quality

Low Quality

Toyota Corolla Altis

Toyota Camry W1

Time Pricing Time Pricing

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Student Discounts Student Discounts in Public Transportin Public Transport

Segmented Pricing EffectivenessSegmented Pricing Effectiveness

– Market must be “segmentable”– Segments must show different demand– Pricing must be legal– Costs of segmentation cannot exceed revenues

earned– Segmented pricing must reflect real differences in

customers’ perceived value

Price Adjustment StrategiesPrice Adjustment Strategies

• Discount / allowance • Segmented• Psychological• Promotional• International

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• The price is used to say something about the product.– Price-quality relationship– Reference prices– Differences as small as five

cents can be important– Numeric digits may have

symbolic and visual qualities that psychologically influence the buyer

StrategiesStrategies

Psychological Psychological

PricingPricing

Psychological PricingPsychological Pricing

This ad for a luxury priced car attempts

to show that Mercedes owners

form important relationships with

their cars

Price Adjustment StrategiesPrice Adjustment Strategies

• Discount / allowance • Segmented• Psychological• Promotional

• Temporarily pricing products below the list price or even below cost– Contracts, Special-event

pricing– Cash rebates– Low-interest financing,

warranties– Loss leaders

StrategiesStrategies

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Promotional Cellphone PricingPromotional Cellphone PricingPPRROOMMOOTTIIOONNAALL

PPRRIICCIINNGG

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No Promotional PricingNo Promotional Pricing

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Loss LeaderLoss Leader

No Loss Leader => Every Day Low PricingNo Loss Leader => Every Day Low Pricing34

Promotional Pricing - ChallengesPromotional Pricing - Challenges

–Easily copied by competitors–Creates deal-prone

consumers–Erode brand value–Industry Price Wars