Setting the price steps between various
products in a product line, based on cost
differences between the products, customer
evaluations of the different features and the
Setting the proper price point is instrumental in
attracting your target customer.
Some customers are willing to pay more for a
product as long as they feel they are getting value for
Most customers however are price-sensitive and are
always seeking the lowest possible price.
SELECT METHOD OF DETERMINING THE BASE PRICE:
Cost-plus Price based on Price set in
pricing both demand relation to
and costs market alone
DESIGN APPROPRIATE STRATEGIES:
Price vs. Non-price Transportation Resale price
competition payments maintenance
Skimming vs. One price vs.
Discounts and allowances
Non-price competition is a marketing strategy "in which
one firm tries to distinguish its product or service from
competing products on the basis of attributes like design and
workmanship". The firm can also distinguish its product
offering through quality of service, extensive distribution,
customer focus, or any other sustainable competitive
advantage other than price. It can be contrasted with price
competition, which is where a company tries to distinguish its
product or service from competing products on the basis of
low price. Non-price competition typically involves
promotional expenditures, (such as advertising, selling staff,
sales promotions, coupons, special orders, or free gifts),
marketing research, new product development, and brand
Competition among firms that choose to differentiate
their products by non-price means, for example, by
quality, style, delivery methods, locations, or special
services. Non-price competition is often practiced by
firms that desire to differentiate virtually identical
products. Companies producing cigarettes, over-the-
counter medications, and food products spend large
sums on non-price competition.
Relationship-based pricing is a management tool
intended to extend additional member/customer
benefits and enhance organizational profitability by
adjusting the price paid (in rates and fees) by each
member/customer to more accurately reflect the cost
of providing the product or service.
• Value based pricing, or Value optimized pricing is a
business strategy. It sets selling prices on the perceived
value to the customer, rather than on the actual cost of the
product, the market price, competitors prices, or the
• The goal of value-based pricing is to align price with value
delivered. Price for any individual customer can be
customized to reflect the specific value delivered.
Examples could include metrics such as number of users,
number of annual transactions, size of revenues, cost
savings, or other measurements. Value based pricing
typically enables companies to become more competitive
and more profitable than using simpler pricing methods.
In competition based pricing the firm essentially
ignores cost and demand.
Competitor's price is used as a guides in setting the
There are two forms of competition based pricing:
Sealed Bid pricing
Going rate pricing
In case of price leader, rivals have difficulty in competing
on price – too high and they lose market share, too low and
the price leader would match price and force smaller rival
out of market
May follow pricing leads of rivals especially where those
rivals have a clear dominance of market share
Where competition is limited, „going rate‟ pricing may be
applicable – banks, petrol, supermarkets, electrical goods
– find very similar prices in all outlets
Strategy adopted for quickly achieving a high volume of
sales and deep market-penetration of a new product.
Under this approach, a product is widely promoted and its
introductory-price is kept comparatively lower. This
strategy is based on the assumption that
• The product does not have an identifiable price-market
• It has elasticity of demand (buyers are price sensitive),
• The market is large enough to sustain relatively low profit
• The competitors too will soon lower their prices.
High price, Low volumes
Skim the profit from the
Suitable for products that
have short life cycles or
which will face competition
at some point in the future
(e.g. after a patent runs out)
Examples include: Play
station, jewellery, digital
technology, new DVDs, etc.
Many are predicting a firesale in
laptops as supply exceeds demand.
• The practice of „price skimming‟ involves charging a
relatively high price for a short time where a new,
innovative, or much-improved product is launched onto a
• The objective with skimming is to “skim” off customers
who are willing to pay more to have the product sooner;
prices are lowered later when demand from the “early
• The success of a price-skimming strategy is largely
dependent on the inelasticity of demand for the product
either by the market as a whole, or by certain market
Price set to „penetrate the market‟
Low‟ price to secure high volumes
Typical in mass market products – chocolate bars,
food stuffs, household goods, etc.
Suitable for products with long anticipated life cycles
May be useful if launching into a new market
Advantages of Penetration Pricing
• It can result in fast diffusion and adoption. This can achieve high
market penetration rates quickly. This can take the competition
by surprise, not giving them time to react.
• It can create goodwill among the early adopters segment. This
can create more trade through word of mouth.
• It creates cost control and cost reduction pressures from the
start, leading to greater efficiency.
• It discourages the entry of competitors. Low prices act as a
barrier to entry (see: porter 5 forces analysis).
• It can be based on marginal cost pricing, which is economically
Price set in accordance
perceptions about the
value of the
Examples include status
products Companies may be able to set prices
according to perceived value.
Used to play on consumer perceptions
Classic example - £9.99 instead of £10.99!
Links with value pricing – high value goods
priced according to what consumers THINK
should be the price
Themore you buy, the cheaper it becomes--
cumulative and non-cumulative.
Incentive offered by a seller to a buyer for purchasing
or ordering greater than usual or normal quantity of
goods or materials, to be delivered at one time or over
a specified period.
Reductions from list for functions performed-- storage,
Trade Discount is a deduction from the list price of
goods provided by a business in return for payment
within a specified time frame.
A deduction granted to buyers for paying their bills
within a specified period of time, (after first deducting
trade and quantity discounts from the base price).
Percentage reduction in the gross price given by a
seller to a buyer who pays within a set period of time.
Cash discounts are given to shorten the length of time
the seller must wait to collect the amount due. Cash
discounts are offered to buyers in most industries,
including media buyers.
3/10, NET 30
Number of days from
Percentage to be
date of invoice in Number of days from
deducted if bill is
which bill must be date of invoice after
paid within specified
paid to receive cash which bill is overdue
1/7, NET 30
F.O.B. Point-of-Production pricing: Price quoted at
factory-- buyer pays transportation
Uniform delivered pricing: Same delivered price quoted
to all; works if transportation costs small.
Zone-delivered pricing: Set same price within several
zones, e.g. Maritimes, Quebec.
Freight-absorption pricing: Seller absorbs transport
cost to penetrate market.
Firms may adopt a one-price strategy or charge
different prices to different customers.
Flexible/Variable pricing strategies: shoppers may pay
different prices if they buy the same quantity.
The psychology of pricing suggests that price will convey
a message about the product or service being sold.
price lining involves setting prices at a small number of
fixed levels within a retail store.
odd pricing is often used to suggest a bargain, while
even pricing is used more in prestige, fashion stores.
Gr0up # 3