○ For a skimming pricing strategy to be successful, competitors cannot be able to enter the market easily; otherwise, price competition will likely force lower prices and undermine the whole strategy. ● Market Penetration Pricing: ○ Market penetration pricing: A pricing strategy of setting the initial price low for the introduction of the new product or service, with the objective of building sales, market share, and profits quickly. ○ Experience Curve Effect: Refers to the drop in unit cost as the accumulated volume sold increases; as sales continue to grow, the costs continue to drop, allowing even further reductions in the price. Psychological Factors Affecting Value-Based Pricing Strategies ● Reference Price: The price against which buyers compare the actual selling price of the product and that facilitates their evaluation process. ● Odd prices: Prices that in odd numbers, usually 9, such as $3.99 ● Everyday Low Pricing (EDLP): A strategy companies use to emphasize the continuity of their retail prices at a level somewhere between the regular, nonsale price and the deep-discount sale prices their competitors may offer. ● High/low pricing: A pricing strategy that relies on the promotion of sales, during which prices are temporarily reduced to encourage purchases. Pricing Tactics ● Pricing Tactics: Short-term methods, in contrast to long-term pricing strategies, used to focus on company objectives, customers, costs, competition, or channel members; can be responses to competitive threats or broadly accepted methods of calculating a final price for the customer that is short term in nature. ● Pricing Tactics Aimed at Consumers: ○ Price Lining: Consumer market pricing tactic of establishing a price floor and a price ceiling for an entire line of similar products and then setting a few other price points in between to represent distinct difference in quality. ○ Price Bundling: Consumer pricing tactic of selling more than one product for a single, lower price than the items would cost sold separately; can be used to sell slow-moving items, to encourage customers to stock up so they won’t purchase competing brands, to encourage trial of a new product, or to provide an incentive to purchase a less desirable product or service to obtain a more desirable one in the same bundle. ○ Leader Pricing: Consumer pricing tactic that attempts to build store traffic by aggressively pricing and advertising a regularly purchased item, often priced at or just above the store’s cost. ● Consumer Price Reduction:
○ Markdowns: Reductions retailers take on the initial selling price of the product or service. ○ Size Discount: The most common implementation of a quantity discount at the consumer level; the larger the quantity bought, the less the cost per unit.
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- Fall '12
- Marketing, Customers