CHAPTER 19 Pricing Strategies PRICING STRATEGIES Specific pricing strategies grow out of the overall marketing strategy. SKIMMING PRICING STRATEGY Skimming

CHAPTER 19 Pricing Strategies

PRICING STRATEGIES

• Specific pricing strategies grow out of the overall marketing strategy.

SKIMMING PRICING STRATEGY

• Skimming pricing strategy Pricing strategy involving the use of a high price relative to competitive offerings.

• Also known as market-plus pricing.

• Commonly used as a market entry price for distinctive goods or services with little or no initial competition.

• Example: When introduced, average price of HDTV with installation was $19,000.

• Sometimes used throughout the life of the product, as with luxury goods.

• Permits marketers to control demand but also attracts competitors.


• Price declines can help marketers capture greater market share during late growth and early maturity stages.


PENETRATION PRICING STRATEGY

• Penetration pricing strategy Pricing strategy involving the use of a relatively low entry price compared with competitive offerings, based on the theory that this initial low price will help market acceptance.

• Sometimes called market-minus pricing.

• Price level may increase to match competitors once product has recognition in the market.

• Common among credit card firms, which offer low introductory rates which they later raise.

• Competition may lower prices to counter this strategy.

• Works best for goods and services that have:

• Highly elastic demand.

• Low production and marketing costs.

• A high likelihood of attracting strong competitors.


Everyday Low Pricing

• Strategy devoted to continuous low prices as opposed to relying on short-term, price-cutting tactics such as cents-off coupons, rebates, and special sales.

• Used by retailers selling to consumers and by manufacturers in dealing with channel members.

• Some retailers, such as grocery stores, oppose EDLP strategies.

• Prefer high-low strategy that set profitable regular prices to offset losses from frequent sales and promotions.

• Disadvantages or EDLP:

• Easy for competitors to match.

• Unless demand is elastic, reduces revenue throughout industry.

• May generate image of questionable quality.


COMPETITIVE PRICING STRATEGY

• Competitive pricing strategy Pricing strategy designed to deemphasize price as a competitive variable by pricing a good or service at the general level of comparable offerings.

• Example: Home Depot and Lowe’s both promise to meet and beat

competitors’ prices.

• May use opening price point by, for example, pricing a quality private-label product below the competition.

• Prices can drop when competitors continually match each other.

• If demand is not elastic, overall revenue of industry will drop.

• Nearly two-thirds of all firms use competitive pricing as their primary pricing strategy.

• Forces firms to compete based on nonprice variable in the marketing mix.


PRICE QUOTATIONS

• List price Established price normally quoted to potential buyers.


PRICE-QUALITY RELATIONSHIPS

• Price affects consumer perception of quality.

• Customers often associate prestige with high prices.

• Some companies work to promote image of high-quality products at low prices.

• Consumers have maximum and minimum price limits.


GLOBAL CONSIDERATIONS ANDONLINE PRICING

• Every online marketer is a global marketer.

• Internal and external considerations guide pricing.

TRADITIONAL GLOBAL PRICING STRATEGIES

• Standard worldwide pricing—can succeed if foreign marketing costs remain low or if their prices reflect average unit costs.

• Dual pricing—distinguishing prices for domestic and export sales.

• Fully allocate foreign and domestic costs to product sales.

• Market-differentiated pricing—setting prices according to local market conditions.


CHARACTERISTICS OF ONLINE PRICING

• Some firms offer online specials that do not appear in catalogs or stores.

The Cannibalization Dilemma

• Cannibalization Loss of sales of an existing product due to competition from a new product in the same line.

• Marketers are becoming increasingly savvy about integrating the different marketing channels.

• Example: Wal-Mart recently introduced such features as “Ship to Store” and “Find It in a Store” to its Web site.

Use of Shopbots

• Search programs that act as comparison shopping agents; also called bots.

• Force online marketers to keep prices low.


BUNDLE PRICING

• Bundle pricing Offering two or more complementary products and selling them for a single price.

• Prevalent in the communications industry.

• Example: AT&T offers packages that include broadband service, e-mail accounts, and rebates on wireless products.

• Consumers may resist of they think they are being forced to pay for products they don’t want.

• Example: Cable television industry, which resists selling channels

individually.


Watch Chevrolet Video

Watch Saturn Video

• Various pricing strategies are evident in the ads for Saturn and Chevy’s new Aveo. Are the strategies matched well with what you think is the target market for each product? What price strategy has each company selected? How are the prices being fine-tuned?

VIDEO


Watch RadioShack Video

• Watch the ad for RadioShack to see how it utilizes discounts/rebates to sell its cell phones.

VIDEO

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CHAPTER 19 Pricing Strategies PRICING STRATEGIES Specific pricing strategies grow out of the overall marketing strategy. SKIMMING PRICING STRATEGY Skimming