Mark 201 Pricing (2nd of 4 Ps) Part 2

Skimming Pricing:
- Setting a high price to maximize profit from early adopters.
- Can attract competition.
- Effective when products are unique and hard to copy.
- Risk of alienating early adopters if prices are later reduced.
  - Example: The first iPhone launched at $600$ , then reduced to $400$ after 10 weeks, causing backlash.
  - Example: Sony's first HDTV cost $43,000$ in 1990, dropping to just over $6,000$ by 1993.
Penetration Pricing:
- Setting a low price to gain maximum market share.
- May discourage competition.
- Suitable when the product is easily copied.
- Unit production and marketing costs decrease significantly with increased sales.
- Risk of creating an expectation of permanently low prices.
- Attracts bargain hunters rather than loyal customers.

Establishing price points for different products within a product line (e.g., MacBook Pro models at varying prices).
- Example: MacBook Pro:
  - 13-inch from $1,229.00$
  - 15-inch from $1,829.00$
  - 15-inch with Retina display from $2,229.00$

Pricing optional or accessory products sold with the main product.
- Example: Configuring a MINI Cooper with optional features, each priced separately.

Pricing products that must be used with the main product (e.g., replacement cartridges for inkjet printers).

Selling a combination of products together at a reduced price.
- Example: TV and Internet bundles offered by Telus.
  - Save up to $480$ with Optik TV and Internet bundles.
  - Includes 4 Theme Packs & 1 Premium and Internet 75 on a 2-year term.

Price Cuts:
- Reasons: Excess capacity, falling market share, aiming to dominate the market through lower costs.
Price Increases:
- Reasons: Cost inflation, over-demand (when supply cannot meet customer needs).

Cash discounts: For prompt payment.
Quantity discounts: For buying in bulk.
Seasonal discounts: During off-peak periods.
- Example: A retailer offers 10% off winter coats in March to clear inventory.

Customer segment pricing: (e.g., student or senior discounts).
Product form pricing: (different versions at different prices).
Location-based pricing
Time-based pricing: (e.g., off-peak vs. peak hours).
- Example: Movie theaters charge less for children and students.
- Example: Airlines charge different prices for the same flight depending on booking time or seat class.

Charm pricing: (e.g., $9.99$ instead of $10$ ).
Prestige pricing: (setting high prices to suggest quality).
Reference pricing: (placing a high original price next to a sale price).
- Example: Apple pricing a MacBook at $1,299$ instead of $1,300$ .
- Example: Designer perfumes priced at $120$ to convey exclusivity.

Prices are not treated as "black and white" by consumers.
Willingness to pay is influenced by factors other than the actual value of the product.
Price perceptions are malleable.
Understanding these perceptions can improve pricing strategies.

Flash sales
BOGO (Buy One Get One)
Limited-time offers
- Example: Black Friday deals offering TVs at 50% off.
- Example: Amazon Prime Day with deep discounts for a short period.

Zone pricing: Different prices by region.
FOB (Free On Board) pricing: Customer pays freight from origin.
- Example: Shipping fees are higher for rural areas.
- Example: A product may cost more in Alaska than in California due to transport costs.

Loss leader pricing: Selling a product at a loss to attract customers who will buy other profitable products (e.g., selling the PS5 at a loss and making profit on games).
Yield management pricing: Adjusting prices based on demand and supply to maximize revenue (often used in services) (e.g., Airline ticket prices vary based on booking time, season, and seat availability).

Price-fixing: An agreement between competitors to set the same prices (collusion).
Price discrimination: Charging different prices to different individual consumers for the same product without cost justification.
Predatory Pricing: Temporarily setting very low prices to eliminate competition and then raising prices again.

Dumping (illegal): Exporting goods at prices lower than the home market or below cost to undermine foreign competitors (e.g., A Chinese steel company selling steel in the U.S. at extremely low prices to gain market share — can lead to tariffs or sanctions).
Parallel importing or grey markets (not illegal but legal challenges): Importing genuine branded products from another country without the trademark owner's permission (Buying luxury watches from Europe and selling them in Canada at a lower price without official brand permission — not illegal, but brands may sue).

Decoy effect: Introducing a third option to make one of the other options look more attractive.
- Example: A popcorn stand offering: (1) Small for $3$ , (2) Large for $7$ , and (3) Medium for $6.50$ . Most people buy the large, which seems like a better deal compared to the medium.

Deceptive pricing: Practices such as bait and switch, false bargains, inflated price comparisons, and double ticketing.
- Bait and switch: Offering a very low price for a product (the bait), then persuading consumers to buy a more expensive product (the switch).
- Bargains conditional on other purchases: Advertising "buy one, get one free" but inflating the price of the first item.
- Price comparisons: Advertising "retail value $100$ -our price $85$ " if the retail value is not a common price in the area.
- Double ticketing: Placing more than one price tag on an item and not selling it at the lower price.