14. Pricing Approaches
Cost-Based Pricing
– Cost-Plus Pricing
» Product Cost + Standard Mark-Up = Price
– BE Analysis & Target Profit Pricing
» A necessary survival tool
Buyer-Based Pricing
– Perceived Value
» Consider buyers’ perceptions of value NOT the cost
Competition-Based Pricing
– Basing prices on competitors’ prices
» Premium Pricing
» Going-Rate Pricing
» Discount Pricing
15. Pricing Strategies
PRICING a SINGLE NEW PRODUCT
– Market-Skimming
» Highest possible price to skim small but profitable segments
– Penetration Pricing
» Lowest possible price to penetrate the market quickly
16. Pricing Strategies
PRODUCT-MIX PRICING
– Product-Line Pricing
» Establishing product lines at different price points
Volkswagen (Polo, Bora, Golf, Passat)
– Optional-Product Pricing
» Offering to sell optional/accessory products along with the main product
BMW & Mercedes
– Captive-Product Pricing
» Offering products, which must be used with the main product
Gillette razor blades
– By-Product Pricing
» Valued by-products positively affect pricing
Petroleum by-products
– Product-Bundle Pricing
» Several products combined and offered at a reduced price
Season tickets, New-year packages of hotels
17. Adjust basic prices to account for various customer
differences and changing situations
– Discounts & Allowances
» To attract/reward certain customer respones
– Discriminatory Pricing
» To allow for differences in customers, products & locations
– Promotional Pricing
» Varying price reductions offered depending on shopping
period, item purchased, etc...
Price Adjustments
18. Price Adjustment Strategies
DISCOUNTS & ALLOWANCES
– Cash Discounts
» Attract early payments
A 15% reduction applied to those customers who buy on cash
– Quantity Discounts
» Price reduction to buyers who buy large quantities
– Functional Discounts
» Differentiating prices among trade channel members
Different mark-ups for OLSs and corners
– Seasonal Discounts
» Price reduction to buyers who buy out-of-season
– Allowances
» Trade-in Allowances
Bring the old, take away the new...
» Promotional Allowances
Discounts provided in return for participating in special programs
19. Price Adjustment Strategies
DISCRIMINATORY PRICING
– Customer-segment Pricing
» Different customers pay different prices
Disneyland Adult vs Child pricing
– Product-form Pricing
» Different versions of the product are priced differently, regardless of the
cost
An additional feature with a slight cost might justify a fat price premium
– Location Pricing
» Different locations are priced differently, regardless of the cost
Business Class seats
– Time Pricing
» Prices differ from month to month, day to day, even hour to hour
Prime-time/Off-prime-time pricing of advertising time
20. Price Adjustment Strategies
PROMOTIONAL PRICING
– Loss Leaders
» Attract consumers in store, sell other items as well
Hyper-Markets (Carrefour, Gima, Praktiker, Migros, etc...)
– Special-event Pricing
» Offering discounts at times of special events
Valentine’s Day, New year, Şişli Municipality’s discount campaign
– Cash Rebates
» Discounts offered to consumers for purchases made in a limited period
of time
Dockers campaign (20 % off)
– Simple Cash Discounts
» Over-the-counter to support revenues OR to defend against competition
21. Consumer’s Mind-set (Black-Box)
– BE CAREFUL !!!
» Price vs Quality Image
CK perfume
Rolex watch
Pharmaceutical items
» Perceptions
30.000.000 TL vs 29.950.000 TL
Psychology of Price
22. One Final Word
“ A product is not a product unless it sells.
Otherwise, it’s just a museum piece…”
Ted Levitt