Other External Factors
- The government is another important external influence on pricing decisions - Social concerns may need to be taken into account 4 outline new-product pricing strategies. (textbook, pp. 371–372) There are 2 broad strategies: 1) Market-skimming (AKA price skimming) – invent new products and set high initial prices to “skim” revenues layer by layer from the market. I.e. Apple. market-skimming only makes sense under certain conditions o products quality and image must support its higher price o the costs of producing a smaller volume cannot e so high that they cancel the advantage of charging more o finally, competitors should not be able to enter the market easily and undercut the higher price. 2 ) Market-penetration pricing – companies set a low initial price to penetrate the market quickly and deeply – to attract a large number of buyers quickly and win a large market share. Several conditions must be met: o The market must be highly price sensitive so that a low price produces more market growth o Production and distribution costs must decrease as sales volume increases o The low price must help keep out competition 5 describe five product mix pricing situations. (textbook, pp. 372–376) 5 Product Mix Pricing Strategies: 1 Product line pricing – management must determine the price steps to set between the various products in a line 2 Optional product pricing – offering to sell optional or accessory products along with the main product 3 Captive product pricing (Two-part pricing) – the price of the services of broken into a fixed fee plus a variable usage rate. 4 By-product pricing – the company seeks a market for these by-products to help offset the costs of disposing of them and help make the price of the main product more competitive. 5 Product bundle pricing – sellers often combine several products and offer the bundle at a reduced price. 6 describe seven price adjustment strategies. (textbook, pp. 376–382) 7 Price Adjustment Strategies
1 Discount and Allowance pricing a Discounts i cash discount- a price reduction to buyers who pay their bills promptly ii quantity discount – is a price reduction to buyers who buy large volumes. Under provisions of the Competition Act, quantity discounts must be offered equally to all customers and must not exceed the seller’s cost savings associated with selling large quantities. iii Seasonal discount – is a price reduction to buyers who buy merchandise or services out of season b Allowances are another type of reduction from list price. i Trade-in allowances – are price reductions given for turning in an old item when buying a new one. ii
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