Marketing tactics - price (continuation)

Price inelastic market

It occurs when customers purchase the same quantity despite a large price increase.

Price elastic market

It occurs when a price change causes a correspondingly greater change in units sold.

Veblen good

It is a good for which demand increases as the price increases due to its exclusive nature and appeal as a status symbol. This runs counter to the prevailing circumstance of demand falling as prices rise. Thus, a Veblen good has an upward-sloping demand curve rather than the typical downward-sloping curve.

Giffen good

These are essential goods, such as rice, potatoes and wheat. Demand stays high when prices increase because there is no ready substitute for them.

Market skimming pricing

Setting a high price for a new product to skim maximum revenues layer by layer from the segments willing to pay the high price; the firm makes fewer but more profitable sales. Products high quality must support its higher price & there must be enough people willing to purchase the product at its initial price. Must be a sufficiently unique product to ensure competitors cannot enter and undercut.

Market penetration pricing

Setting a low price for a new product in order to attract a large number of buyers and a large market share.

Conditions of market penetration pricing

Price sensitive market, production and distribution costs must fall as volume increases and low price must keep out competition.

Product line pricing

Setting the price steps between various products in a product line based on cost differences between product, customers evaluations of different features and competitors’ prices.

Optional product pricing

The pricing of optional or accessory products along with a main product

Captive product pricing

Setting a price for products that must be used along with a main product. Base product is cheap, then you’re hooked

By-product pricing

Setting a price for by-products to make the main product’s price more competitive. If by-products have no value and getting rid of them is costly, it affects the pricing of the main

product. We try find a market for the by-products to get any price that exceeds the cost of storage and delivery.

Product bundle pricing

Combining several products and offering the bundle at a reduced price. Price bundling promotes the sale of products that customers may not otherwise buy.

Discount pricing

A straight reduction in price on purchases during a stated period of time.

Reducing price to reward customer responses

Cash discount
Quantity (Makro / PnP / WW)
Functional (trade discount)
Seasonal (early ordering)
Trade-in allowance

Promotional pricing

Temporarily pricing products below the list price, sometimes even below cost in order to stimulate sales.

Reducing price to boost sales.

Psychological pricing

An approach that considers the psychology of prices; using price to ‘say something’ about the product.

2 types of good value pricing

Everyday low pricing: charging a constant everyday low price with few or no temporary price discounts.

High-low pricing: charging higher prices on an everyday basis, but running frequent promotions to temporarily lower prices on selected items.

Decoy pricing

Method of pricing where the seller offers at least three products, and where two of them have a similar or equal price. The two products with the similar prices should be the most expensive ones, and one of the two should be less attractive than the other. This strategy will make people compare the options with similar prices, and as a result sales of the more attractive high-priced item will increase.

Loss leader

A loss leader or leader is a product sold at a low price (i.e. at cost or below cost) to stimulate other profitable sales. This would help the companies to expand its market share as a whole. Loss leader strategy is commonly used by retailers in order to lead the customers into buying products with higher marked-up prices to produce an increase in profits rather than purchasing the leader product which is sold at a lower cost. Supermarkets and restaurants are an excellent example of retail firms that apply the strategy of loss leader.

Predatory pricing

Predatory pricing, also known as aggressive pricing (also known as "undercutting"), intended to drive out competitors from a market. It is illegal in some countries (South Africa – Competition Act 89 of 1998). Firms that tend to get involved with the strategy of predatory pricing often have the goal to place restrictions for other new businesses from entering the market. Due to this strategy, in the short-term consumers will be benefited and satisfied. However, firms will not be benefited in the long term as this same strategy will be continued to be used by other businesses against each other, because of the increase in competition within the market causing major losses.

Dumping

Dumping is a term used in the context of international trade. It's when a country or company exports a product at a price that is lower in the foreign importing market than the price in the exporter's domestic market.

Segmented pricing

Selling a product/service at two or more prices, where the difference in prices is not based on differences in costs. Also called “dynamic” or “discriminatory” pricing.

Conditions required to segment price

Market must be able to be segmented. Members of segments buying lower prices shouldn’t be able to resell them. Competitors shouldn’t be able to undercut the firm in the segment being charged more. The more “obvious” it is, the more possible damage (that’s why it is good for digital transactions)

Subscription pricing

Also called flat pricing, periodical payments, it is priced in tiers.