PRICING CONSIDERATIONS & STRATEGIES Lesson Objectives • Identify pricing techniques that are used primarily in the consumer market • Identify pricing techniques that are used primarily in business-to- business sales Pricing Strategies Two Main Strategies 1. Physiological Pricing 2. Discount Pricing 1. Psychological Pricing Techniques that create an illusion or that make shopping easier for customers A. Odd/Even Pricing • Prices end in odd or even numbers • Odd numbers convey $2.99 bargain image ($19.99) • Even numbers convey quality/high end ($100.00) B. Prestige Pricing • Prices purposely set high to create image of quality • Targeted toward markets who equate high price with quality • Examples – Perrier Water – Nike – Air Jordan’s – Lexus C. Multiple Pricing • Targeted toward value- conscious markets $.99 ea. OR • Example: 3 for $.99 3 for $2.50 instead of $.33 each D. Promotional Pricing • Used with sales promotions • Temporary price reduction • Designed to increase store traffic • Loss-leader pricing • Special Event pricing – Back-to-school – 4th of July – Memorial Day E. Price Lining Advantages • All merchandise in one • Customers differentiate category priced at the between value same price • Helps customers make • All Warm-up Suits for: decisions $39.99, $59.99, and $79.99 • Allows store to target multiple markets • Typical in Department • Allows salespersons to Store setting “up sell” or “down sell” more easily F. Yield-Management Pricing • Pricing at different prices to maximize revenue when limited capacity is involved. Concert and Sporting Event Seating 2. Discount Pricing •Reductions in price given based on a buyer’s behavior •Targeted toward industrial sales A. Cash Discounts • To encourage quick payment of bill • Example 2/10 net 30 Read: If paid by the 10th, receive 2% discount, OR full amount due by the 30th of the month 3/15 net 28 Invoice (bill) = $3200 Paid on the 8 th of the month $3200 X .03 = $96 $3200 - $96 = $3104 B. Quantity Discounts • Generally – the more you buy, the more you save • Similar to multiple pricing for personal consumers • To encourage large orders – Cumulative: over a period of time – Non-cumulative: one order/one time C. Seasonal Discounts • To encourage purchasing in advance of the customary buying period. • “Early bird orders” • Helps organize production and labor • Off-season resort sales E. Promotional Discounts • Given for advertising or promoting manufacturer’s products • % reduction in price • Allowance - free merchandise • Cooperative advertising – costs shared Review • What is the pricing technique used primarily for the consumer market? • Name the 5 kinds of psychological pricing. • What is the pricing technique used primarily for the industrial market? • Name the 4 kinds of discount pricing.