Transcript Product Pricing - University of Minnesota

Product Pricing
ApEc 4451
General Retail Strategies


EDLP (everyday low pricing):
- Aimed at pricing continuity.
- Strive for low price, but not always the
lowest.
- Low price guarantee policy.
- Trend toward.
High/low pricing:
- Maintain a regular price typically.
- Occasional deep-discount sales price.
- Trend away from; role of manufacturers.
Approaches to Product Pricing


Cost-oriented method:
- Also called markup pricing.
- Add a fixed % markup over cost.
- Used by retailers: % over COGs.
- Is quick and simple.
Demand-oriented method:
- Based on what customers expected
or willing to pay.
- Competition-oriented pricing.
- Customary pricing (vending machines).
- Loss-leader pricing.
Profit-Oriented Methods:
Used by producers



Target Profit Pricing: price to achieve a
specific profit level.
Target Return-on-Sales Pricing: aim is to
achieve profits that are specific
percentage of sales volume.
- Supermarkets return on sales of 1-4%.
Target Return-on-Investment Pricing:
- Companies like GM set a ROI such as
20%.
Adjustments to list (normal) price
 Quantity
discounts (multiple-unit
pricing.
 Seasonal discounts.
 Coupons: discount when purchased.
 Rebates: portion of price returned to
buyer.
 Special event pricing.
New product pricing: consider
 Demand
– potential number of
consumers and elasticity of demand.
 Newness of product- stage in
lifecycle.
 Cost of production and marketing.
 Competition and its pricing.
Special Pricing Strategies
 Price
bundling or Bundle pricing.
 Variable pricing (zone pricing):
charge different price in different
stores, markets, or zones.
 Skimming pricing: set a very high
initial price that only a few
customers will pay.
 Penetration pricing: set a low initial
price to appeal to mass market.
Special pricing (continued)
Prestige pricing: sets high price to attract
status-conscious consumers.
 Price lining: price items in a product line
at a number of different price points.
 Odd pricing: $2.99; $495,000.
- Customers don’t think as $3.00 or half a
million.
- Widely used, although may not work.
 Demand-backward pricing: adjust quality
to achieve desired price point.

Internet Pricing
Consumers use for price search or
comparison shopping; even if don’t buy on
internet.
 Auction pricing: Ebay; some companies
use Ebay to sell overstocked, returned;
out-of-season goods.
 Low-bid pricing: Priceline; not sure of
what purchasing (ex. Number of stops on
flight or actual hotel).
 Internet/home-delivery grocery shopping:
Simon Delivers – Coburn’s
