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- Pricing Psychology
- The Strategy and Tactics of Pricing: A Guide to Growing More Profitably
- Read [PDF] Strategy & Tactics Of Pricing Full PDF
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Once a firm has established its pricing objectives and analyzed the factors that affect how it should price a product, the company must determine the pricing strategy or strategies that will help it achieve those objectives.
As we have indicated, firms use different pricing strategies for their offerings. And oftentimes, the strategy depends on the stage of life cycle the offerings are in currently. Products may be in different stages of their life cycle in various international markets.
Think of products that have been introduced in the last decade and how products were priced when they first entered the market. Since then, the price has dropped considerably even for new models. The idea is to go after consumers who are willing to pay a high price top of the market and buy products early. This way, a company recoups its investment in the product faster.
The easy way to remember a skimming approach is to think of the turkey gravy at Thanksgiving. Price skimming is a pricing approach designed to skim that top part of the gravy, or the top of the market. Over time, the price of the product goes down as competitors enter the market and more consumers are willing to purchase the offering.
In contrast to a skimming approach, a penetration pricing strategy is one in which a low initial price is set. Often, many competitive products are already in the market. The goal is to get as much of the market as possible to try the product.
Penetration pricing is used on many new food products, health and beauty supplies, and paper products sold in grocery stores and mass merchandise stores such as Walmart, Target, and Kmart.
Another approach companies use when they introduce a new product is everyday low prices. New flavors of snacks, candy, cereal, and shampoo sold in grocery stores and by mass merchandisers similar to the one in this picture are priced using a penetration pricing strategy to get consumers to try the products.
Companies can choose many ways to set their prices. Many stores use cost-plus pricing , in which they take the cost of the product and then add a profit to determine a price. Cost-plus pricing is very common. When companies add a markup , or an amount added to the cost of a product, they are using a form of cost-plus pricing. When products go on sale, companies mark down the prices, but they usually still make a profit.
Potential markdowns or price reductions should be considered when deciding on a starting price. Many pricing approaches have a psychological appeal. Odd-even pricing occurs when a company prices a product a few cents or a few dollars below the next dollar amount. See Figure Prestige pricing occurs when a higher price is utilized to give an offering a high-quality image. Some stores have a quality image, and people perceive that perhaps the products from those stores are of higher quality.
Neckties are often priced using a strategy known as price lining , or price levels. Movies and music often use price lining. Remember when you were in elementary school and many students bought teachers little gifts before the holidays or on the last day of school. Knowing that people have certain maximum levels that they are willing to pay for gifts, some companies use demand backward pricing. They start with the price demanded by consumers what they want to pay and create offerings at that price.
IKEA also sets a price for a product—which is what the company believes consumers want to pay for it—and then, working backward from the price, designs the product. Leader pricing involves pricing one or more items low to get people into a store. For example, prior to Thanksgiving, grocery stores advertise turkeys and cranberry sauce at very low prices.
The goal is to get shoppers to buy many more items in addition to the low-priced items. Leader or low prices are legal; however, as you learned earlier, loss leaders , or items priced below cost in an effort to get people into stores, are illegal in many states. Sealed bid pricing is the process of offering to buy or sell products at prices designated in sealed bids. Companies must submit their bids by a certain time. The bids are later reviewed all at once, and the most desirable one is chosen.
Sealed bids can occur on either the supplier or the buyer side. Via sealed bids, oil companies bid on tracts of land for potential drilling purposes, and the highest bidder is awarded the right to drill on the land.
Similarly, consumers sometimes bid on lots to build houses. The highest bidder gets the lot. On the supplier side, contractors often bid on different jobs and the lowest bidder is awarded the job. The government often makes purchases based on sealed bids.
Projects funded by stimulus money were awarded based on sealed bids. Bids are also being used online. Online auction sites such as eBay give customers the chance to bid and negotiate prices with sellers until an acceptable price is agreed upon. When a buyer lists what he or she wants to buy, sellers may submit bids. This process is known as a forward auction.
If the buyer not only lists what he or she wants to buy but also states how much he or she is willing to pay, a reverse auction occurs. Going-rate pricing occurs when buyers pay the same price regardless of where they buy the product or from whom. Going-rate pricing is often used on commodity products such as wheat, gold, or silver. People perceive the individual products in markets such as these to be largely the same.
Combo meals and value meals sold at restaurants are an example. See the following video clips for promotions of value meals in the United States, Greece, and Japan.
Other products such as shampoo and conditioner are sometimes bundled together. Automobile companies bundle product options. For example, power locks and windows are often sold together, regardless of whether customers want only one or the other.
Captive pricing is a strategy firms use when consumers must buy a given product because they are at a certain event or location or they need a particular product because no substitutes will work. Concessions at a sporting event or a movie provide examples of how captive pricing is used.
Similarly, if you buy a razor and must purchase specific razor blades for it, you have experienced captive pricing. The blades are often more expensive than the razor because customers do not have the option of choosing blades from another manufacturer. Pricing products consumers use together such as blades and razors with different profit margins is also part of product mix pricing. If you want to buy an automobile, the base price might seem reasonable, but the options such as floor mats might earn the seller a much higher profit margin.
Most students and young people have cell phones. Are you aware of how many minutes you spend talking or texting and what it costs if you go over the limits of your phone plan?
Maybe not if your plan involves two-part pricing. Two-part pricing means there are two different charges customers pay. In the case of a cell phone, a customer might pay a charge for one service such as a thousand minutes, and then pay a separate charge for each minute over one thousand. Get out your cell phone and look at how many minutes you have used. Many people are shocked at how many minutes they have used or the number of messages they have sent in the last month.
Have you ever seen an ad for a special item only to find out it is much more expensive than what you recalled seeing in the ad? Payment pricing , or allowing customers to pay for products in installments, is a strategy that helps customers break up their payments into smaller amounts, which can make them more inclined to buy higher-priced products. Promotional pricing is a short-term tactic designed to get people into a store or to purchase more of a product.
Examples of promotional pricing include back-to-school sales, rebates, extended warranties, and going-out-of-business sales.
Extended warranties have become popular for all types of products, including automobiles, appliances, electronics, and even athletic shoes. However, when it comes to automobiles, repairs can be expensive, so an extended warranty often pays for itself following one repair. Buyers must look at the costs and benefits and determine if the extended warranty provides value. We discussed price discrimination , or charging different customers different prices for the same product, earlier in the chapter.
In some situations, price discrimination is legal. As we explained, you have probably noticed that certain customer groups students, children, and senior citizens, for example are sometimes offered discounts at restaurants and events.
However, the discounts must be offered to all senior citizens or all children within a certain age range, not just a few. Price discrimination is used to get more people to use a product or service.
Similarly, a company might lower its prices in order to get more customers to buy an offering when business is slow. Matinees are often cheaper than movies at night; bowling might be less expensive during nonleague times, and so forth.
Organizations must also decide what their policies are when it comes to making price adjustments , or changing the listed prices of their products.
Some common price adjustments include quantity discounts , which involves giving customers discounts for larger purchases. Discounts for paying cash for large purchases and seasonal discounts to get rid of inventory and holiday items are other examples of price adjustments.
Many online merchants offer free shipping on certain products, orders over a certain amount, or purchases made in a given time frame. FOB free on board origin and FOB delivered are two common pricing adjustments businesses use to show when the title to a product changes along with who pays the shipping charges.
FOB free on board origin means the title changes at the origin—that is, when the product is purchased—and the buyer pays the shipping charges. FOB free on board destination means the title changes at the destination—that is, after the product is transported—and the seller pays the shipping charges. Uniform-delivered pricing , also called postage-stamp pricing, means buyers pay the same shipping charges regardless of where they are located.
If you mail a letter across town, the postage is the same as when you mail a letter to a different state. Reciprocal agreements are agreements in which merchants agree to promote each other to customers.
Customers who patronize a particular retailer might get a discount card to use at a certain restaurant, and customers who go to a restaurant might get a discount card to use at a specific retailer.
The Strategy and Tactics of Pricing: A Guide to Growing More Profitably
Often the best counterattack does not involve a retaliatory price cut. Price wars—retaliatory cuts in prices to win customers—can devastate managers, companies, even entire industries. To survive a price war unscathed, you need weapons other than price cuts. This article outlines both non-price and price tactics that let you walk away with the spoils of war. The best way to escape a damaging price war is not to jump into the fray at all. Getting pulled in can hurt your margins, teach customers to wait for the next price cut, and saddle you with a low-quality reputation. But if you have to respond—e.
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Download books for free. Find books. A comprehensive and practical, step-by-step guide to pricing analysis and strategy development. The Strategy and Tactics of Pricing shows readers how to manage markets strategically—rather than simply calculate pricing based on product and profit—in order to improve their competitiveness and the profitability of their offers. Publisher: Routledge, Taylor amp; Francis. Goodreads helps you keep track of books you want to read. The Strategy and Tactics of Pricing reveals the fundamental importance of how you price your products.
"The theme of this book is simple. The price, the number someone puts on a product to help consumers decide to buy that.
Read [PDF] Strategy & Tactics Of Pricing Full PDF
Once a firm has established its pricing objectives and analyzed the factors that affect how it should price a product, the company must determine the pricing strategy or strategies that will help it achieve those objectives. As we have indicated, firms use different pricing strategies for their offerings. And oftentimes, the strategy depends on the stage of life cycle the offerings are in currently. Products may be in different stages of their life cycle in various international markets.
Table of Contents
Nothing in this world has concrete meaning. At the end of the day, price is merely a perception. Nothing more. Nothing less. In fact, you can change the perception of a price by changing the visual traits of the numeral.
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