PRICING

STRUCTURE
 WHAT IS PRICING
STRUCTURE?
 The price structure of a company is the pattern of prices it charges
its clients.
 A pricing structure is a method of pricing products and services
that establishes multiple prices , discounts, and offers that are
compatible with the organization’s goals and strategy.
 Price structure can have an impact on how a firm grows and how
customers view it.
 It has a direct impact not only on the bottom line, but also on the
brand’s image and perception.
 PRICE WARS
 A pricing war is a competitive exchange in which competitor
enterprises lower the price points on their products in order to
undercut one another and get a larger market share.
 Price war can be utilized to enhance revenue in the short term or as
a long-term plan.
 Price wars can be avoided by employing strategic price
management, which entails non-aggressive pricing, a detailed
understanding of the competition, and even open dialogue with
competitors.
ADVANTAGES OF PRICE WARS
 Consumers benefit from lower prices
 Consumers also benefit from additional add-on services
 Companies benefit by gaining new customers
 DISADVANTAGES OF PRICE
WARS
 Companies that lose a price war lose market share and
profits
 Price wars can lead to less competition and higher prices
 Consumers have fewer choices for products and services
 PRICE PROMOTION
 A price promotion is a discount intended to increase
sales. This frequently leads to an increase in sales in the
short term at the price of profit margins. Alternatively,
a price reduction might be part of a strategy to
maximize long-term returns on client acquisition and
retention.
 COMMON TYPES OF PRICE

PROMOTION
Sale Price – Putting items on sale by offering a percentage or a dollar discount
such as 50% off.
 Multi-Buy Promotion – Offering a deal with multiple purchases such as buy
two get one free
 Coupons – Issuing coupons to customers. This is a form of price
discrimination as price insensitive customers may not bother looking for
coupons.
 Deal of the Day – Regular deals, often loss leaders, that are designed to
encourage regular and habitual visits
 Loss leader – is a very low price for an item that is designed to get your
customers to visit.
 Regular Sale – a big sale whereby all items or most items are discounted that
occurs at regular and predicable intervals.
 Sales event – a sale that is combined with promotional features such as
contests, free food and giveaways.
 Clearance price – steep discount for unpopular or out of season items that are
designed to clear inventory
 Seasonal Sale – A sale that attempts to prevent inventory problems by
discounting seasonal items in the middle of the season.
 Limited time offer – an offer that expires very quickly so as to create a sense
of urgency.
 New customer promotion – a price promotion that is only available to new
customers.
 Subscription deal – a price that is only available if you subscribe to regular
automatic purchases that can be canceled at any time
 PRICE BUNDLING
 Price bundling is the practice of merging many products or
services into a single comprehensive package for a
discounted all-inclusive price.
 Price bundling, also known as product bundle pricing, is a
retail strategy that allows businesses to sell a large number of
things at a larger margin while also offering a discount to
customers.
 FUNDAMENTAL BUNDLE PRICING
STRATEGIES
PURE BUNDLING
 is when products are only sold together. In some
cases, products don’t exist outside the bundle .
 CATEGORIES OF PURE
BUNDLING
Joint bundling -is when the two products are offered
together for one bundled price.
Leader bundling -is when a leader product is offered for a
discount if purchased with a non-leader product, accessory,
etc.
• Mixed - leader bundling - is a type of leader bundling
with the added possibility of buying the leader product on
its own
FUNDAMENTAL BUNDLE PRICING
STRATEGIES
MIXED BUNDLING
 also called custom bundling, is when customers are offered to
purchase bundle or separate products on their own.
 Consumers are offered complete cable, internet, and telephone
packages. The price will depend on the level of service that the
package provides. If you choose high-speed internet and maximum
channels, it’s going to be much more expensive than getting a
package with low-speed internet and minimum channels.
 PRICE DISCRIMINATION
 Price discrimination is a sales approach in which the
seller charges customers various prices for the same
product or service based on what the vendor believes the
customer will agree to.
 TYPES OF PRICE
DISCRIMINATION
FIRST – DEGREE DISCRIMINATION
 First-degree discrimination, often known as perfect price
discrimination, happens when a company charges the highest price
feasible for each unit consumed.
SECOND – DEGREE PRICE DISCRIMINATION
 When a corporation charges a different price for different quantities
consumed, such as quantity discounts on bulk purchases, this is
referred to as second-degree pricing discrimination.

THIRD – DEGREE PRICE DISCRIMINATION

 When a company charges different prices to distinct consumer
groups, this is referred to as third-degree price discrimination.
 NONLINEAR PRICING
 Nonlinear pricing refers to any tariff structure in which the
purchase price is not strictly proportional to some measure of
purchase quantity but also reflects other characteristics of the
product, the purchaser, the purchase as a whole, its timing, and any
contractual terms imposing restrictions on the purchase and its
subsequent use.
 VALUE-BASED PRICING
 Value-based pricing is a strategy of setting prices primarily based on a
consumer’s perceived value of product or service.
 Value pricing is customer-focused pricing, meaning companies base their
pricing on how much the customer believes a product is worth.
 Consumer-focused pricing is defined as value pricing, which means that
organizations base their pricing on how much a customer believes a product is
worth.
 The value-based pricing theory is most prevalent in marketplaces where
owning an item improves a customer’s self image or allows for exceptional
life experiences.
 PRICING PSYCHOLOGY
Psychological pricing refers to the practice of setting
prices that are less than a whole number. The idea
behind psychological pricing is that customers will
read the slightly reduced price and treat it as though
it were lower than the actual price.
 ADVANTAGES OF
PSYCHOLOGICAL PRICING
 Attention boost - Even if consumers don't buy, your brand is
becoming noticed.
 Simplified decision-making process - Most psychological pricing
strategies make it easier for customers to make a decision. This is a
positive thing for retail stores that rely on one-time sales.
 High return - Obtaining a large return at the end of the day is likely
with promotions that appeal to the masses.
 Sense of urgency Customers will want to move decisively in order
to avoid missing out on the deal. This will also increase the
likelihood of a quick high return on investment.
 DISADVANTAGES OF
PSYCHOLOGICAL PRICING
 Deceitful - Some people may be able to see right through psychological
pricing strategies and see them as taking advantage of clients. Some, on the
other hand, may recognize the methods and embrace them as a necessary part
of doing business.
 Misperceived value – There is always the risk of misperceived value when
using psychological pricing strategies. Your price is the means via which you
transmit value to your customers. This form of communication is dependent on
how your customers perceive you’re pricing.
 Not a long term solution – Using psychological pricing techniques is not a
long-term price strategy. It may bring you quick conversions for a short time,
but B2B companies should have a more solid and long-term plan in place
 DYNAMIC PRICING
 Dynamic pricing is a partially technology-based pricing
system under which prices are altered to different
customers, depending upon their willingness to pay.
 EXAMPLES OF DYNAMIC
PRICING:
 Airlines - The price of airline seats varies depending on the type of
seat, the number of seats remaining, and the amount of time until
the trip departs. As a result, multiple different prices for seats on a
single aircraft may be charged.
 Hotels – Prices in the hotel sector vary depending on the size and
configuration of the rooms, as well as the time of year
 Electricity - Utilities may charge higher prices during peak usage
periods.
 ADVANTAGES OF DYNAMIC
PRICING
 Profit maximization is a significant advantage of employing the
dynamic pricing strategy. If a seller's prices are regularly updated
with dynamic pricing, it will most likely maximize its potential
profits.
 Dynamic pricing necessitates a significant amount of inventory
monitoring, with price reductions in reaction to increased inventory
levels. This method swiftly eliminates surplus inventory.
 DISADVANTAGES OF
DYNAMIC PRICING
 If prices fluctuate frequently, customers may become confused and gravitate
toward merchants that do not employ dynamic pricing.
 Rapid price changes might alter demand for items, making inventory
replenishment harder to plan for.
 Communicating pricing adjustments to clients may necessitate a larger
marketing presence in the marketplace
 If employed in a retail context, it necessitates significant activity to update
product pricing as soon as the system changes prices.
 If a whole industry adopts dynamic pricing, a company must invest in
competitor price monitoring systems to see whether its prices are comparable
to those of competitors.
LAW, ETHICS, AND
SOCIAL
RESPONSIBILITY IN
PRICING
 PRICE FIXING
 One of the great societal benefits of free-market economic
system is the ability of price regulation to be accomplished
by the market itself.
 Market regulation helps keep price low.
 FIGURE 5.1 MATRIX OF COMPANIES
INVOLVED IN THE DISTRIBUTION OF
PRODUCTS
 HORIZONTAL PRICE FIXING
 Horizontal price fixing can take a variety of forms. There
can be agreements among competing sellers on a common
target price, agreements to set a common minimum price,
agreements to impose the same mandatory surcharges,
agreements to establish uniform costs and markups, or
agreements to restrict product supply.
 FIGURE 5.2 PARALLEL-
PRICING PLUS FACTORS
FIGURE 5.3 SIGNALING/PRICE-
INFORMATION PLUS FACTORS
 VERTICAL PRICE FIXING
 The typical vertical price-fixing situation involves a
manufacturer or other supplier of a product specifying the
price that can be charged by the resellers of the product,
such as wholesalers or retailers, who compete one another.
PUBLIC UTILITY REGULATION
 It is usually the case that such industries are considered to
be natural monopolies, which are said to exist when the
presence of competing sellers creates inefficiencies.
FIGURE 5.4 TANGLE OF WIRES IN EARLY
TELEPHONE SERVICE ILLUSTRATING
WHY IT WAS CONSIDERED A NATURAL
MONOPOLY
 INAPPROPRIATE PRICE
LEVELS
 Price fixing is a type of societally questionable pricing practice that
concerns the price-setting process. A second type of questionable
pricing practice concerns not so much any particular price-setting
process such much as the negative societal consequences of the
price that end up actually occurring. These negative consequences
could result from prices being too high, or they could result from
price being too low.
 EXCESSIVELY HIGH PRICES
 It is not just factoring that occur in the economic or natural
environment that could lead a price to be excessively high;
governmental policies could also be the culprit.
 EXCESSIVELY LOW PRICES
 It is not just high prices that could have negative societal
consequences; low prices could also be harmful to society
 One way that this could occur is when a low price contributes to the
consumption of a product that is considered undesirable
 Consumer interest in an undesirable product is sometimes reffered
to as unwholesome demand
 PRIMACY OF ETHICS AND
SOCIAL RESPONSIBILITY
 From this discussion of four types of societally
questionable pricing practices— (1) price fixing, (2)
inappropriate price levels, (3) inappropriate price
differentials, and (4) inadequate price communication—it
can be seen that some pricing techniques often considered
unethical and/or socially irresponsible are not illegal.
Despite this, it is important that sellers take concerted steps
to avoid such practices.
FIGURE 5.5 PRICING INFORMATION FOR A
CREDIT CARD OFFER