Ch 14: Pricing Concepts for Establishing Value

Price

the amount of money charged for a product or service. It is the sum of all the values that consumers give up in order to gain the benefits of having or using a product or service.

• Price is the only element in the marketing mix that produces revenue; all other elements represent costs

Market skimming pricing

a strategy with high initial prices to “skim” revenue layers from the market

• Product quality and image must support the price

• Buyers must want the product at the price

• Costs of producing the product in small volume should not cancel the advantage of higher prices

• Competitors should not be able to enter the market easily

Market penetration pricing

sets a low initial price in order to penetrate the market quickly and deeply to attract a large number of buyers quickly to gain market share

• Price sensitive market

• Inverse relationship of production and distribution cost to sales growth

• Low prices must keep competition out of the market

Product line pricing

takes into account the cost differences between products in the line, customer evaluation of their features, and competitors’ prices

– ex: GAP Inc.

Optional product pricing

takes into account optional or accessory products along with the main product

– ex: Buying a car

Captive product pricing

involves products that must be used along with the main product

– ex: Gillette or Polaroid

Quantity Discount

reduces prices to buyers who buy large volumes

Ex: Costco

Seasonal Discount

reduces prices to buyers who purchase merchandise or services out of season

Ex: Christmas things after holidays

Swimwear after summer