Foundation of Marketing

(2022-2023)
Course Code: MKT121

Dr. Mayar Farrag

mfarrag@ecu.edu.eg

Dr. Perihan Salah

sperihan@ecu.edu.eg

Group TA Email
Group (A) Muhammad Alaa maamin@ecu.edu.eg
Group (B) Nourhan Ali nali@ecu.edu.eg
Group (C) Nada El-Mahdy nmelmahdy@ecu.edu.eg

1
 Chapter 11
Pricing Products: Pricing Strategies

Chapter overview
In this chapter, we look at pricing strategies available to marketers – new-product pricing
strategies, product mix pricing strategies, price adjustment strategies, and price reaction
strategies.
A company does not set a single price, but rather a pricing structure that covers different items in
its line. This pricing structure changes over time as products move through their life cycles. The
company adjusts its prices to reflect changes in costs and demand and to account for variations in
buyers and situations. As the competitive environment changes, the company considers when to
initiate price changes and when to respond to them.
This chapter examines the major pricing strategies available to marketers. The chapter covers
new-product pricing strategies for products in the introductory stage of the product life cycle,
product mix strategies for related products in the product mix, price adjustment strategies that
account for customer differences and changing situations, and strategies for initiating and
responding to price changes.

CHAPTER OBJECTIVES

1. Describe the major strategies for pricing imitative and new products.
2. Explain how companies find a set of prices that maximize the profits from the total
product mix.
3. Discuss how companies adjust their prices to take into account different types of
customers and situations.
4. Discuss the key issues related to initiating and responding to price changes.

Chapter outline

P. 336 New-product pricing strategies

Companies bringing out a new product face the challenge of

PPT 11-3 setting prices for the first time. They can choose between
two broad strategies.

2
P. 336 Market-Skimming Pricing

Many companies that invent new products set high initial

PPT 11-4 prices to “skim” revenues layer-by-layer from the market.
This is called market-skimming pricing.

Market skimming makes sense only under certain

conditions.

o The product’s quality and image must support its higher

price, and enough buyers must want the product at that
price.
o The costs of producing a smaller volume cannot be so
high that they cancel the advantage of charging more.
o Competitors should not be able to enter the market
easily and undercut the high price.

Market-Penetration Pricing
P. 337
Rather than setting a high price to skim off small but
profitable market segments, some companies use market-
PPT 11-5 penetration pricing. They set a low initial price in order to
penetrate the market quickly and deeply—to attract a large
number of buyers quickly and win a large market share.

Several conditions must be met for this low-price strategy to

work.

o The market must be highly price sensitive so that a low

price produces more market growth.
o Production and distribution costs must fall as sales
volume increases.
o The low price must help keep out the competition, and
the penetration price must maintain its low-price
position—otherwise, the price advantage may be only
temporary.