New product pricing strategies.

TOPIC Product mix pricing strategies.

OUTLINE Price adjustment strategies.

Price changes.
 NEW PRODUCT STRATEGIES.

Market Market
skimming penetration
pricing pricing
NEW PRODUCT STRATEGIES.

• MARKET SKIMMING PRICING is a strategy with high initial prices to skim

revenue layers from the market.
• Product quality and image must support the price.
• Buyers must want the product at the price.
• Costs of producing tge product in small volume should not cancel the
advantage of higher prices.
• Competitors should not be able to enter the market easily.
 NEW PRODUCT PRICING STRATEGIES.

• 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.
• Price sensitive market.
• Inverse relationship of production and distribution cost to sales growth.
• Low prices must keep competition out of the market.
PRODUCT MIX PRICING STRATEGIES

Optional Captive
Product line
product product
pricing
pricing pricing

By product Product
pricing 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.
• Optional product pricing takes into account optional or accessory
along with the main product.
 PRODUCT MIX PRICING STRATEGIES

• Captive product pricing

- Involves products that must be used along with the main product.
• Two part pricing involves breaking the price ratio:
-fixed fee
-variable usage fee
 PRICE MIXING 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 salary.
PRICE MIX • Product bundle pricing- combines several products at a reduced price.
STRATEGIES
PRICE_ADJUST • Price-Adjustment Strategies refers to all those strategies which are applied
MENT by an organisation to take into consideration the difference among the
STRATEGIES customers and rapidly changing environment.
 Discount and
allowance
pricing
Psychological Segmented
pricing pricing

Price-
Adjustment
Geographical
Strategies
Promotional
pricing pricing

Dynamic International
pricing pricing
DISCOUNT AND ALLOWANCE PRICING

• Reduces prices to reward customers

responses such as paying early or
promoting the product
• Discounts
• Allowances
 SEGMENTED
PRICING
• Used when a company sells a product at
two or more prices even though the
difference is not based on cost

• Customer group (locals, foreigners)

• Product form (bottle, soft-pack)

• Place – city, town

• Time- (Evening, weekends, festive

seasons)
 Market must be segmentable

Segments must show different degrees of

demand
TO BE
EFFECTIVE: Watching the market cannot exceed the extra
revenue obtained from the price difference

Must be legal
 PSYCHOLOGICAL PRICING

• Occurs when sellers consider the psychology

of prices and not simply the economics
 PROMOTIONAL
PRICING
• Is when prices are temporarily priced below list price
or cost to increase demand
• Loss leaders
• Special event pricing
• Cash rebates
• Low-interest financing
• Longer warrantees
• Free maintenance
 • Used too frequently and copies by competitors can create
RISK OF “deal-prone” customers who will wait for promotions
PROMOTIONAL and avoid buying at regular price
PRICING • Creates price wars
 • Is used for customers in
different parts of the country
or the world
 FOB-origin pricing
 Uniformed-delivered pricing
 Zone pricing
 Basing-point pricing
 Freight-absorption pricing

GEOGRAPHICAL PRICING
 • Is when prices are adjusted continually to meet the
DYNAMIC
characteristics and needs of the individual customer and
PRICING situations.
 INTERNATIONAL PRICING

• Is when prices are set in a specific country based on country-specific factors

• Economic conditions
• Competitive conditions
• Laws and regulations
• Infrastructure
• Company marketing objective
 PRICE CHANGES
INITIATING PRICING CHANGES

Price decreases
Price increases
 PRICE CHANGES

INITIATING PRICING

CHANGES
Price decreases occur due to:
Excess capacity
Increased demand

Price increases occur

due to:
Cost inflation
increased demand
lack of supply
 PRICE CHANGES
Buyers Reactions to Pricing Changes

Price increases Price Cuts

New models will be
Product is "hot" availible
Company Models are not selling well
greed Quality issues
 PRICE CHANGES

RESPONDING TO PRICE

CHANGES
Questions
Why did the competitor change the price?
Is this price cut permanet or tempoary?
What is the effect on market share and profits?
Will competitors respond?
 PRICE CHANGES

RESPONDING TO PRICE

CHANGES
Solutions
Reduce price to match competition
Maintain price but raise the perceived value through communications
Improve quality and icrease price
Launch a lower-price "fighting" brand
 PRICE CHANGES
Responding to Price Changes
no
Has competitor cut price? Hold current price: continute to monitor competitors price

yes
no
Reduce price
Will lower price negativity affect our market share
and profits?
Raised perceived value

yes Improve quality and increase price

Launch low-price :"fighting brand"

Can/should effective action be taken?

 PUBLIC POLICY AND PRICING
• Price competition is a core element of our free- market
economy. In setting prices, companies usually are not free to charge,
whatever prices they wish.
• Many laws govern the rules of fair play in pricing

• The monopolies and restrictive trade practices

(MRTP) act, 1969
• The Competition Act, 2002
 PUBLIC POLICY AND PRICING

Salient features of the Competition Act:

anti-competitive agreements
prohibition of abuse of dominant positions by an enterprise
regulation of combinations such as acquisitions, mergers, joint ventures, takeovers,
and amalgamations
 PUBLIC POLICY AND
PRICING

Under the M RTP Act, acts such as misleading consumers about the prices at which
goods and services are availible in the market and false offers of bargain prices are
considered to be unfair trade practices
The Consumer Protection Act, 1986 ( amended in 2002), also safeguards the
interests of consumers
 PUBLIC POLICY AND PRICING

•Predatory pricing, or selling and providing services with the intention of reducing competition or
eliminating competitors, is not permissible under the MRTP Act or the Competition Act.
 Public Policy and
Pricing
With advancements in technology, additional conerns, such as
scanner fraud, are on the rise.