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Pricing-Strategies Powered By Docstoc
					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
competitors‟ pricing.
  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
 their Money.
 Most customers however are price-sensitive and are
 always seeking the lowest possible price.
       Cost-plus         Price based on     Price set in
       pricing           both demand        relation to
                         and costs          market alone

Price vs. Non-price     Transportation          Resale price
 competition            payments                maintenance
Skimming vs.            One price vs.
                         flexible price
                        Psychological pricing
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
management costs.
 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
  historical price
• 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
    margins and
•   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
  adopters” falls.
• 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
  with customer
  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
•Quantity discount

•Trade discounts

•Cash discount
 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.
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