Pricing Strategy Chap 5

• Competitive Pricing


  A marketing strategy where businesses set prices based on their competitors' prices
• Bundle Pricing


  A business strategy where companies group several products together into a bundle and sell them at a single price
• Psychological Pricing


  The practice of using the power of psychology to push consumers to spend
• Competitive Pricing


  • Essential to help a business set an offer price which is in line with competition, and will maximize revenue and deliver a good profit
  • Businesses can set a price to maximize profitability, increase market share, or stop competitors from entering the market
• Pricing is one of the most important components when it comes to creating marketing strategies
• With the rise in eCommerce, competition in the market has gotten much more aggressive and real-time</b>
• Factors companies consider when setting prices are costs, competition, and price sensitivity
• Steps to determine if competitive pricing is best

  1. Research competition to understand what others are charging

  2. Consider costs of materials, labor, overhead, and shipping

  3. Know the target market and what customers are willing to pay

  4. Monitor market and industry trends, as well as changes in the overall economy
• Options for competitor-based pricing

  • Go above the price of competitors
  • Follow competitors' prices
  • Go below the price of competitors
• Advantages of competition-based pricing

  • Easy
  • Low risk
  • Evolves with the market
• Disadvantages of competition-based pricing


  • Missing out
  • You won't stand out
  • Making same mistake
• Types of Bundle Pricing

  • Pure Bundling
  • Mixed Bundling
• Pure Bundling


  Customers can only purchase the bundle as-is or not at all
• Mixed Bundling


  Customers can purchase the bundle at a discounted price or individual products at a higher price
• When to use Bundle Pricing

  • Unsold Stocks
  • New Product
• Advantages of Bundle Pricing

  • Increase revenue
  • Best chance to test new product
  • Improve customer experience
• Disadvantages of Bundle Pricing

  • Customers do not need all the products
  • Decrease in revenue due to discount
  • Customers' negative view of the company for selling outdated products
• Industries that use Bundle Pricing

  • Restaurants
  • Internet and cable companies
  • Retail stores
• Psychological pricing techniques have been used throughout history to influence consumer behavior
• Psychological Pricing


  The practice of setting prices slightly lower than a whole number, based on the belief that customers will not round up the price
• Types of Psychological Pricing

  • Charm pricing and odd-even pricing
  • Artificial time constraints
  • Innumeracy
  • Price appearance
• Charm Pricing


  Removing one cent from the rounded dollar price of an item to trick the brain into thinking it costs less
• Artificial Time Constraints


  Creating a sense of urgency by offering limited-time sales or promotions
• Innumeracy


  Customers feel like a "buy one, get one free" offer is a better deal, even though the math is the same
• Price Appearance


  The way a price is displayed can influence how customers perceive it, e.g. $12 feels cheaper than $12.00
• Pros of Psychological Pricing

  • Attention boost
  • Simplified decision-making process
  • High return
  • Sense of urgency
• Cons of Psychological Pricing

  • Deceitful
  • Misperceived value
  • Not a long-term solution