Transcript 2Ch.26 Pricing Strategies

Pricing Strategies
Ch. 26 ME
Section 26.1
Basic Pricing Policies
Basic Pricing Concepts
 Cost-Oriented Pricing
 Marketers first calculate the costs of acquiring or making a product
and their expenses of doing business
 Mark-Up Pricing – resellers add a dollar amount to their cost to
arrive at a price
 Cost-Plus Pricing – all costs and expenses are calculated, and then
the desired profit is added to arrive at a price
 Demand-Oriented Pricing – determines what consumers are
willing to pay for given goods and services
 Pricing is dependent on the consumer’s perceived value of the item
Basic Pricing Concepts
 Competition-Oriented Pricing
1. Price above the competition
2. Price below the competition
3. Price in line with the competition (Going-Rate Pricing)
 There is no relationship between the cost and price or between the
demand and price
 Competitive-Bid Pricing – determines the price for a product
based on bids submitted by companies to a company or
government agency
 Establishing Base Price – all three pricing strategies can be used
Pricing Policies
One-Price Policy – is one in which all customers are charged the
same prices
Flexible-Price Policy – is one in which customers pay different
prices for the same type or amount of merchandise
Non-Going Rate Strategies
Skimming Pricing – is a pricing policy that sets a very high price
for a new product
Penetration Pricing – the price for a new product is set very low
Specialized Methods for
Closing the Sale
Which Close – encourages a customer to make a decision
between two items
Standing-Room-Only Close – is used when a product is in short
supply or when the price will be going up in the near future
Direct Close – is a method in which you ask for the sale
Service Close – is a closing in which you explain services that
overcome obstacles or problems
Failure to Close the Sale
Not every sale presentation will result in a sale
Get Feedback
Maintain a Positive Attitude
Prepare for future sales calls
Success in sales
1. Section 26.2
Strategies in the Pricing Process
Product Mix Strategies
 Product Mix Pricing Strategies – involve adjusting prices to
maximize the profitability for a group of product rather than on
just one item
 Price Lining – is a special pricing technique that sets a limited
number of prices for specific groups or lines of merchandise
 Optional Product – sets prices for accessories or options sold with
the main product
 Captive Product – sets the price for one product low but
compensates for that low price by pricing the supplies needed to
operate that product high
Product Mix Strategies
 By-Product – helps businesses get rid of excess materials used
in making a product by using low prices
 Bundle Pricing – a company offers several complimentary
products in a package that is sold at a single price
 Geographical Pricing – refers to price adjustments required
because of the location of the customer for delivery of products
Segmented Pricing Strategies
 Segmented Pricing Strategy – uses two or more different prices
for a product, even though there is no difference in the item’s
cost
 Buyer Identification – recognizes a buyer’s sensitivity
 Product Design – create different prices for different product
styles that do not reflect the cost of making the item, but the
demand for a given style
 Purchase Location – involves pricing according to where a product
is sold and/or the location of the good or service
 Time of Purchase – prices charged according to demand based on
time of day
Psychological Pricing Strategies
 Psychological Pricing – are pricing techniques that help create an
illusion for customers
 Odd-Even Pricing – involves setting prices that all end in either odd or
even numbers
 Odd numbers convey a bargain
 Even numbers convey a quality image
 Prestige Pricing – sets higher-than-average prices to suggest status and
higher quality to the consumer
 Multiple-Line Pricing – suggests a bargain and helps to increase sales
volume
 Everyday Low Prices (EDLP) – are low prices set on a consistent basis
with no intention of raising then or offering discounts in the future
Promotional Pricing
 Promotional Pricing – is generally used in conjunction with
sales promotions where prices are reduced for a short period of
time
 Loss Leader Pricing – is used to increase store traffic by offering
very popular items of merchandise for sale at below-cost prices
 Special-Event – items are reduced in price for a short period of
time, based on specific happenings
 Rebates and Coupons
 Rebates – are partial refunds provided by the manufacturer
 Coupons – allow customers to take reductions at the time of purchase
Discounts and Allowances
 Cash Discounts – are offered to buyers to encourage them to
pay their bills quickly
 Quality Discounts – are offered to buyers for placing large
orders
 Non-Cumulative – offered on one order
 Cumulative – offered on all orders over a specified period of time
 Trade Discounts – the way manufacturers quote prices to
wholesalers and retailers
 Seasonal Discounts – are offered to buyers willing to buy at a
time outside the customary buying season
 Allowances – go to directly to the buyer after a trade-in
Steps in Determining Prices
1.
2.
3.
4.
5.
6.
Establish Pricing Objectives
Determine Costs
Estimate Demand
Study Competition
Decide on a Pricing Strategy
Set Prices