Pricing Strategy

charm pricing

-consumers often subconsciously round down rather than up

-$19.99 considered $19 not $20

price anchoring

-consumers rely on the first piece of information they see to judge subsequent prices

-premium plan vs standard plan

decoy effect

-adding a third, less attractive option to steer a customer towards another option

-different sizes with the middle price being a “scam”

innumeracy

-consumers prefer framed deals over mathematically identical ones

-BOGO vs 50% two items

price appearance

-the physical design of a price can influence consumer

-taking away the dollar sign or making the decimal smaller

prestige pricing

-setting higher prices to signal superior quality

-luxury brands

selecting the pricing objective

-survival

-maximum current profit

-maximum market share

-product quality leadership

-market skimming

price elasticity

marketers need to know how responsive, or elastic, demand is to a change in price

selecting the pricing method

-costs (price floor)

-competitors prices

-customer’s assessment of unique features (price ceiling)

markup pricing

add a standard markup to the product’s cost

target return pricing

setting a price to earn a desired profit level

perceived value pricing

based on buyer’s image of product and the companies reputation

value pricing

fairly low price for a high quality offering

EDLP

a constant low price with little to no price promotion or sale

going rate pricing

based largely on competitors prices

auction pricing

buyers compete by bidding, and the highest bid sets the price

pricing strategies to stimulate purchase

-loss leader

-special event

-special customer

-cash rebates

-low interest financing

-longer payment terms

-warranties and service contracts

-psychological discounting

anticipating competitive responses

price changes can provoke a response from customer, competitors, distributors, suppliers and even government

responding to competitors price changes

-products life cycle stage

-importance in the portfolio

-competitors intentions and resources

-market sensitivity

-behavior of costs with volume

-alternative opportunities