Objective 3.03C Employ Pricing Strategies to Determine Prices

1. Part III – Pricing New Products Objective 3.03C Employ Pricing Strategies to Determine Prices

2. Objectives: • a. Identify strategies for pricing new products. • b. Select product-mix pricing strategies. • c. Determine discounts and allowances that can be used to adjust base prices. • d. Adjust base prices using psychological pricing techniques. • e. Select promotional pricing strategies. • f. Select geographic pricing strategies to adjust base prices. • g. Identify segmented pricing strategies. • h. Demonstrate procedures for selecting appropriate pricing strategies for products.

3. New product Pricing Strategies • Penetration pricing in the introductory stage of a new product's life cycle involves accepting a lower profit margin and pricing relatively low. • Price skimming involves setting the price relatively high to generate a high profit margin. • A premiumproduct generally supports a skimming strategy.

4. Product Mix Pricing Strategies • The product mix is the collection of products and services that a company chooses to offer its market. Pricing strategies range from being the cost leader to being a high-value, luxury option for consumers.

5. Cost Plus • Cost-plus pricing is the most basic type of pricing and simply represents setting the cost of a product at some level above the cost of producing and distributing that product. So, for instance, a jeweler might decide to price products at a 100 percent mark-up based on the costs that go into creating the product. • Competition Based • Competition-based pricing is pricing that is established specifically to address and respond to the prices of competitors' products. Businesses may decide to price either higher or lower or at about the same levels of the competition, but their decisions are based on an evaluation of what competitors are doing and how they want to position their product mix.

6. Discounts and Allowances • Clearance Markdowns to get rid of slow-moving, obsolete merchandise • Promotional Markdowns • To increase sales and promote merchandise • To Increase traffic flow and sale of complementary products generate excitement through a sale • To generate cash to buy additional merchandise

7. There are five basic types of psychological pricing strategies. • 1. Odd-even pricing is a strategy of setting prices in odd numbers just below an even price, for example pricing an item at the odd $19.95 rather than the even price of $20.00. The intention of odd-even pricing is to make the price appear considerably lower than it is.

8. Pricing Strategies Cont. • 2. Prestige pricing works on the opposite premise; rather than making prices seem low, prices are inflated in order to create a sense of greater value. For example, a wine might be priced at $20 per bottle rather than $12 merely to give the impression that it is a better product.

9. Pricing Strategies Cont. • 3. Multiple pricing is a psychological pricing strategy in which items are bundled together, such as two for $5 rather than $2.50 per item. This strategy creates a sense of value and can help boost sales volume by encouraging the purchase of multiple items.

10. Pricing Strategies Cont. • 4. Promotional pricing is the psychological pricing strategy in which a price is temporarily lowered in order to attract customers.

11. Pricing Strategies Cont. • 5. Price lining is an effective form of psychological pricing for companies with an extensive product line; it involves creating a price range for a particular line, for example a budget clothing line with items all priced below $10.

12. Geographical Pricing. • Geographical pricing sees variations in price in different parts of the world. For example rarity value, or where shipping costs increase price. In some countries there is more tax on certain types of product which makes them more or less expensive, or legislation which limits how many products might be imported again raising price.

13. Segmentation Pricing • If you plan a product segmentation strategy, you may incur higher product development or manufacturing costs to create different versions, so it is important to focus on segments where you can make a profit. Price segmentation enables you to offer the same basic product, but add features that customers are willing to pay for or remove cost elements that are not important to customers.