Pricing Strategies

Pricing Strategies

• New-Product Pricing Strategies

• Product Mix Pricing Strategies

• Price Adjustment Strategies

Give two examples of each of the following…….

• High initial prices to get revenues from small but

profitable segments –
Market Skimming

• Low initial price to attract large number of buyers

quickly and to win a large market share –
Market Penetration
 Market-skimming pricing
A strategy with high initial prices to “skim” revenue
layers from the market. E.g. iPhone, Porsche, LG smart
TV, BMW, Harley Davidson

• Product quality and image must support the price

• Buyers must want the product at the price
• Costs of producing the product in small volume
should not cancel the advantage of higher prices
• Competitors should not be able to enter the market
easily
 Market-penetration pricing
Sets a low initial price in order to penetrate the
market quickly and deeply to attract a large
number of buyers quickly to gain market share,
e.g. Micromax, Xiaomi, Reliance Jio, H&M in India

• Price sensitive market

• Inverse relationship of production and
distribution cost to sales growth
• Low prices must keep competition out of the
market
 Give two examples of each of the following…..

• A product line of a consumer goods manufacturer and prices of item within

the line
Product Line Pricing

• Features of an SUV included in the base price and additional features offered
as options
Optional Product Pricing

• Products that must be used along with a main product

Captive Product Pricing

• By-products of the main product that is also profitable

By-product pricing

• A bundle of services included in a vacation package

Product Bundle Pricing
 Product Mix Pricing Strategies

Product line pricing takes into account the

cost differences between products in the
line, customer evaluation of their features,
and competitors’ prices e.g. Bata, iPad

Optional-product pricing takes into account

optional or accessory products along with
the main product, e.g. cars
 Product Mix Pricing Strategies

Captive-product pricing involves products that must be

used along with the main product. E.g. Gillette razors,
replacement cartridges; Refill packs of liquid
handwash , Printer –cartridge

Product bundle pricing combines several products at a

reduced price e.g. toothpaste and toothbrush offered
together at lower prices
 Product Mix Pricing Strategies
• By-product pricing refers to products with little or no value
produced as a result of the main product. Producers will
seek little or no profit other than the cost to cover storage
and delivery.

• It is determining the price for by-products in order to make

the main product’s price more attractive.

– For example, L.T. Overseas, manufacturers of Dawaat basmati rice,

found that processing of rice results in two by-products i.e. rice
husk and rice brain oil. If the company sells husk and brain oil to
other consumers, then company is adopting by-product pricing.
 Give two examples of each of the following…..
• When companies reward customers for certain responses such as early payment of
bills, volume purchases, and off-season buying
Discount and Allowance Pricing

• A company sells products at different prices based on differences in customers,

products and locations
Segmented Pricing

• Consumers perceive higher-priced product as having higher quality Psychological

Pricing

• Companies temporarily price their products below list price and even below cost to
create buying excitement and urgency
Promotional Pricing

• Different prices for different customers located in different parts of the country or
world
International Pricing
 Discount and Allowance Pricing

• Reduces prices to reward customer

responses such as paying early or promoting
the product

– Discounts
e.g. although payment is due within 30 days, the buyer can deduct 2
percent if the bill is paid within 10 days
– Allowances
e.g. trade-in allowances are price reductions given for turning in
an old item when buying a new one. Trade-in allowances are
most common in the automobile industry but are also given for oth
er durable goods.
 Segmented Pricing

Used when a company sells a product at

two or more prices even though the
difference is not based on cost

– For instance, theaters vary their seat prices b
ecause of audience preferences for certain
locations.

– Museums, for example, will charge a lower
admission for students and senior citizens.
 Price-Adjustment Strategies

Psychological pricing occurs when sellers consider the

psychology of prices and not simply the economics
e.g. an expensive bottle of perfume

Reference prices are prices that buyers carry in their

minds and refer to when looking at a given product
– Noting current prices
– Remembering past prices
– Assessing the buying situations
 Price-Adjustment Strategies

Promotional pricing is when prices are temporarily priced

below list price or cost to increase demand. E.g. buy one
get one free, prices of products during launch

Risks of promotional pricing

• Used too frequently, and copies by competitors can

create “deal-prone” customers who will wait for
promotions and avoid buying at regular price
• Creates price wars
 Price-Adjustment Strategies

Geographical pricing is used for customers in

different parts of the country or the world
(e.g. using freight charges for customers based in different
cities)

Dynamic pricing is when prices are adjusted continually to

meet the characteristics and needs of the individual
customer and situations (E.g. Airlines)
 Indian Railways
“In a bid to shore up its revenues, the Indian Railways has decided to sell
50 per cent of tatkal tickets through the system of dynamic pricing. This
means that while the first half of the total number of tatkal tickets will be
sold at existing tatkal rates, which are up to 30 per cent higher than
normal fare, the second half will be sold at progressively higher prices.

The new scheme will be implemented on the most popular trains, tatkal
tickets for which face huge demand across the country. Each of the 16
zonal railways has been asked to identify five most popular trains and
implement the scheme. It is learnt that dynamic pricing of tatkal tickets
will ward off touts. According to the system, after 50 per cent of the tatkal
tickets are sold, rates would go up after every 10 per cent. The system,
which was rolled out on October 1.”
 Dynamic pricing

• Adjusting prices continuously to meet

the characteristics and behaviors of
specific customers. E.g ebay or
priceline

• Amazon.com mine their database to

gauge specific shoppers desire,
measure his or her means,
instantaneously tailor products to fit
that shoppers behavior, and price
products accordingly

• Dell uses Dynamic pricing to achieve

real time between Demand and
Supply.
It benefits the customers but
Marketers need to be careful
 Price-Adjustment Strategies

International pricing is when prices are set in a specific

country based on country-specific factors.

E.g. FBB in Oman, prices lower than in India