Chapter 11, Pricing Products and Services - Marketing | MKT 300, Study notes of Marketing Management

Download Chapter 11, Pricing Products and Services - Marketing | MKT 300 and more Study notes Marketing Management in PDF only on Docsity! Chapter 11 Outline: Pricing Products and Services *Price is the most easily copied p, and most flexible *Price is the worst way to compete  Differential pricing strategies: 1. One-price vs. variable price Most everything we buy is one price strategy. Variable pricing strategy; price doesn’t always have a sticker price Ex. Cars, negotiable Regular customers that get deals because they have good business 2. Second market discounting Give a target market a discount, but not to all groups of people you sell to. Ex. Student Discounts Excess capacity is a requirement If you could sell everything at full price, why wouldn’t you? 3. Skimming Equals setting a high price. Used when: If demand is greater than supply, set a high price If you are facing inelastic demand, skim. (They are insensitive to price) If your production capacity is limited, set a high price. If barriers to entry are high, it’s appropriate to use skimming  Competitive pricing strategies: 1. Penetration pricing Setting a low price Used when: When supply exceeds demand, set a low price. When demand is elastic. If barriers to entry are low If there’s no limited production, set low prices.  Product Line pricing strategies: They all sell a group of products (many products), the goal is to maximize total profitability over that entire group of products, rather than focusing on anyone item’s individual profitability. 1. Captive pricing Selling of a product and complementary products. Ex. Camping gear, Most people buy a tent. But you need other things along with a tent. Take a lower markup on the tent. If you get that target market to make that original purchase, markup the rest of the stuff associated with the original purchase. 2. Leader pricing Used mainly by grocery stores. Product that doesn’t cost much money, frequent purchases, you know how much it costs by memory because you buy it all the time. Stuff that’s marked down so low that it leads people into the store. 3. Loss leader pricing Okay to lose money over one item, because you price it so low 4. Low leader pricing Cut the price, but you still make profit 5. Bait and switch pricing Advertised product at a great price. Usually a more expensive product. Ex. Illegal bait and switch Target advertised, they had small TV at a great price. Said they don’t have any at the store. It’s illegal to say you have something but you don’t. They tried to get people in, tell them there are good alternatives… 6. Price lining Mainly used in fashion. Come up with categories with prices. Ex. Dress shop with different prices for different purposes, prom dresses vs. office dresses 7. Price bundling McDonald’s extra value meal. You bundle different products together and sell them at one price. 8. Multiple unit pricing Same identical product sold as a bundle. Get a lowered price per item.  Psychological/Image pricing strategies: 1. Odd vs. even Prices that end in a 5 or 9 is odd. Retailers are convinced that they will sell more of a product if it’s priced at $.99 rather than $1. Research doesn’t prove this.