Pricing Strategies

Setting Prices

taking into consideration steps and procedures to form a price

Cost-plus pricing

5 Common Pricing Strategies:

• most common pricing strategy

• calculate your cost, then add your mark-up

• add all contributing factors for one unit + desired mark-up percentage

Competitive Pricing

• setting your price based on your competitor's price

• make sure to know your competitors' prices can make necessary price adjustments

Co-operative Pricing

3 Approaches When Adjusting Prices

• you match your competitor's price

• when your competitors increase their prices you also increase yours, and vice versa

Aggressive Pricing

3 Approaches When Adjusting Prices

• stubborn stance

• when competitors increase, you don't increase yours

• when competitors decrease their prices, you decrease yours more than theirs

• makes sure that you have a lower price to attract customer

Dismissive Pricing

3 Approaches When Adjusting Prices

• you must be leading the market - it could be that you offer something unique or the best service/product that everyone wants

• you have the power to set the price as long as you are the only one to offer this product to the market

Price Skimming

product innovation leads to more competitors

Market Penetration

• the opposite of price skimming

• consumer attraction

• build customer loyalty

Value-based Pricing

value perception

Product Mix Pricing Strategy

when the firm seeks a set of prices where the products should always be determined with the product mix in mind, plus the prices must optimize its profitability on the product mix available

Product Line Pricing

• this is setting process across an entire product line

• firms usually categorize goods and services to generate different perceived quality levels in the minds of consumers

• various products are priced within the same range of products at different price points

Optional Product Pricing

• this is a type of pricing for optional or accessory products that would serve as an addition to a core product itself

• however, it is also indeed challenging for companies to decide which of the products should be priced the lowest and which should be offered options

Captive Product Pricing

• occurs when a company creates goods that must be utilized in conjunction with the main product

• the captive product is an essential part of the main product making it useful

By-product Pricing

• this is when the company tries to price and sell the byproducts or waste of the primary products

• some companies may even convert the garbage into profit

• the corporation attempts to offset the expense of disposing of byproducts to make the price of the primary product more competitive

Product Bundle Pricing

• companies use this to mix many products and offer the bundle at a lower price

• this strat is often used by fast food chains, and they do this so that the business can enhance the sales of an unpopular product with their popular product

Discount and Allowance Pricing

Seven Types of Price Adjustment Strategies

• discounts can be granted as a cash discount, a price reduction to buyers who pay their bills promptly

• a quantity discount, or price reduction, can also be offered to customers who make significant purchases

• the third type of discount is a seasonal account, which lowers the price for customers who purchase goods or services out of season

Segmented Pricing

Seven Types of Price Adjustment Strategies

• under location-based pricing, firm charges different prices for different locations, although the cost of offering each location is the same

• under time-based pricing, the business changes its prices according to the day, the season, the month, and even the hour

Psychological Pricing

Seven Types of Price Adjustment Strategies

• refers to pricing that takes into account price psychology as well as economics

• this does not, however, last forever; price is less frequently used to evaluate quality when customers may examine a product or rely on prior experience with it

Promotional Pricing

Seven Types of Price Adjustment Strategies

• necessitates temporarily selling things below the list price and occasionally even below cost

• could take the form of discounts from normal prices to increase sales and reduce inventories

• price promotions have the potential to turn people into markdown shoppers if they are utilized too frequently and replicated by other businesses

FOB-origin Pricing

Five Types of Geographical Pricing:

• since items are loaded onto a ship for free, the cost of shipping them from the production to the destination falls on the client

Uniform-delivered Pricing

Five Types of Geographical Pricing:

• no matter where the consumer is located this business charges te same amount plus freight

Zone Pricing

Five Types of Geographical Pricing:

• each consumer inside a zone pays the same amount; however, the price increases with distance

Base-point Pricing

Five Types of Geographical Pricing:

• the supplier chooses a base point city and bills all the consumers for freight from that base point location

Freight-absorption Pricing

Five Types of Geographical Pricing:

• the seller absorbs all or part of the freight charges to get desired business

Dynamic Pricing

• the practice of constantly modifying prices to match the characteristics and needs of particular customers and scenarios

• historically, prices were usually decided by negotiation between buyers and sellers

• the pricing was tailored to the unique consumer or situation

• instead of set prices, prices are modified on a daily, or even hourly basis, taking into account several variables such as current demand, stocks, and costs

International Pricing

• companies that sell their goods globally must choose the pricing to change in the various markets where they do business

• depends on a variety of variables, including the state of the economy, market conditions, legal and regulatory frameworks, and the evolution of the system for wholesale and retail trade

• costs of selling in another country, including the extra costs of operations, product adjustments, shipping and insurance, import levels and taxes, and even exchange-rate swings