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Chapter14: Strategic Pricing MethodsChapter Openerp. 412p. 413LEARNING OBJECTIVESIdentify three methods that firms use to set their prices.Describe the difference between an everyday low price strategy (EDLP) and a high/low strategy.Explain the difference between a market penetration and a price skimming pricing strategy.Identify tactics used to reduce prices to consumers.Identify tactics used to reduce prices to businesses.List pricing practices that have the potential to deceive customers.Deeply discounted products or services cause retailers to lose money. However, if these promotions accomplish other strategic goals, such as bringing in new customers, they can be tremendously valuable. Success depends on reaching a wide audience of interested consumers with a deal that can't be ignored. Finding the model that delivers this one-two punch is the genius behind Groupon.com.Every day, Groupon alerts its users to a deal.1The discounts are based in the hundreds of cities worldwide that Groupon serves and offered to site users in those markets so that a woman living in New York, for example, could find discounts to nail salons nearby. Economically, the deals are attractive: $10 worth of pizza for $5,2a 64 percent discount on membership to the Chicago Art Institute, and nearly half
off interactive cooking classes that culminate with a four-course gourmet meal.3They revolve around social events, like classes or dining out, and are for goods or services that customers may find appealing but have been unwilling to try because of cost.Although Groupon searches for deals that don't contain fine-print restrictions, the company attaches its own strings to discounts: A minimum number of people must sign up before the promotion takes effect. This caveat motivates users to spread the word via social networking sites. If the minimum isn't reached, the discount does not apply and neither the customer nor the business is charged.So far, maximums have been more of an issue than minimums. The Chicago Art Institute promotion added 5,000 new members, an impressive addition to the 85,000 members the museum had accumulated in the previous 100 years. The owner of the pizza chain offering 50 percent off coupons had 9,000 responses. Business owners, Groupon warns, need to be ready for this kind of interest. Some small businesses cap their offers to avoid overwhelming staff or frustrating customers who may have to wait months for an appointment.Groupon itself faces an avalanche of interest from site users and businesses. The down economy creates appeal on the user side, having triggered a 25 percent growth in the company's e-mail base in one month. Groupon now reaches over 10 million shoppers. Most of these users are young professionals in their 20s and 30s earning more than $100,000 annually, a highly desirable target market.