Pricing

• Market Skimming:

  • Setting a high price for a new product to skim maximum revenues layer by layer from the segments willing to pay the high price; the company makes fewer but more profitable sales
• Market Penetration:

  • Setting a low price for a new product to attract a large number of buyers and a large market share
• Conditions for Market Skimming:

  • The product’s quality and image must support its high price
  • The cost of producing at a smaller volume must not outweigh the benefits of charging higher
  • High barriers to entry
• Conditions for Market Penetration:

  • The market must be price-sensitive
  • Production and distribution costs must decrease as sales volume increases
  • The low price must help keep out competition
• Product Mix Pricing Strategies include:

  • Product Line Pricing
  • Optional Product Pricing
  • Captive Product Pricing
  • By-Product Pricing
  • Product Bundle Pricing
• Price Adjustment Strategies:

  • Discounts: A straight reduction in price on purchases during a stated period of time or of larger quantities
• Trade-in allowances:

  • Price reductions given for turning in an old item when buying a new one, common in the automobile industry
• Trade-in allowances:

  • Promotional allowances: Payments or price reductions to reward dealers for participating in advertising and sales support programs
• Price Adjustment Strategies:

  • Segmented: Different customers pay different prices for the same product or service
• Price Adjustment Strategies:

  • Allowances: Promotional money paid by manufacturers to retailers in return for featuring the manufacturer’s products
• Product line - setting prices across an entire product line
• Optional product - pricing optional/accessory products sold with the main product
• Captive product - pricing products that must be used with the main product
• By product - pricing low value by products to get rid of them
• Product bundle - pricing bundles of products sold together at a discounted price.