11. Pricing Strategies

Question 1

New product pricing strategies

Answer 1

Market-skimming and market-penetration pricing

Question 2

Market-skimming pricing (price skimming)

Answer 2

Setting a high price for a new product to skim max revenues layer by layer from the segments willing to pay the high price; the company makes fewer but more profitable sales. The product’s quality and image must support the high price and there must be people willing to buy , the cost of producing smaller volume cannot be so high, competitors must not be able to enter the market easily.

Question 3

Market-penetration pricing

Answer 3

Setting a low price for a new product in order to attract a large number of buyers and a large market share. The market must be highly price sensitive, production and destribution costs must decrease as sales increase, the low price must be maintained and help keep out the competition.

Question 4

Product mix strategies

Answer 4

Product line pricing, optional-product pricing, captive-product pricing, by-product pricing, product bundle pricing.

Question 5

Product line pricing

Answer 5

Setting the price steps between various products in a product line based on cost differences between the products, customer evaluation of different features, and competitors’ prices.

Question 6

Optional-product pricing

Answer 6

The pricing of optional or accessory products along with a main product.

Question 7

Captive-product pricing

Answer 7

Setting a price for products that must be used along with a main product, such as blades for a razor and games for a video-game console.

Question 8

By-product pricing

Answer 8

Setting a price for by-producst to help offset the costs of disposing of them and help make the main produst’s price more competitive.

Question 9

Product bundle pricing

Answer 9

Combining several products and offering the bundle at a reduced price.

Question 10

Price Adjustment Strategies

Answer 10

Discount and allowance pricing, segmented pricing, psychological pricing, promotional pricing, geographycal pricing, dynamic pricing and international pricing.

Question 11

Discount

Answer 11

A straight reduction in price on purchases during a stated period of time or of larger quantities. (quantity disount, functional/trade discount, seasonal discount)

Question 12

Allowances

Answer 12

Promotional money paid by manufacturers to retailers in return for an agreement to feature the manufacturer’s products in some way. (trade-in and promotional allowances)

Question 13

Segmented pricing

Answer 13

Selling a product at two or more prices, where the difference in prices is not based on the differences in costs; they should reflect on the perceived value. (Customer-segmented, product form, location-based pricing)

Question 14

Psychological pricing

Answer 14

Pricing that considers the psychology of prices and not simply the economics; the price is used to say something about the product.

Question 15

Reference prices

Answer 15

Prices that buyers carry in their minds and refer to when they look at a given product.

Question 16

Promotional pricing

Answer 16

Temporarily pricing products below the list price, and sometimes even below cost, to increase short-run sales. (Special-event pricng, flash sales/limited-time offers, cash rebates)

Question 17

Geographical Pricing

Answer 17

Setting prices for customers located in different parts of the country or world.

Question 18

FOB-origin pricing

Answer 18

Pricing in which goods are placed free on board a carrier; the customer pays the freight from the factory to the destination.

Question 19

Uniform-delivered pricing

Answer 19

Pricing in which the company charges the same price plus freight to all customers, regardless of their location.

Question 20

Zone pricing

Answer 20

Pricing in which the company sets two or more zones. All customers within a zone pay the same total price; the more distant the zone, the higher the price.

Question 21

Basing-point pricing

Answer 21

Pricing in with the seller designates some city as a basing point and charges all customers the freight cost from that city to the customer.

Question 22

Freight-absorption pricing

Answer 22

Pricing in which the seller absorbs all or part of the freight charges in order to get the desired business.

Question 23

Dynamic pricing

Answer 23

Adjusting prices continually to meet the characteristics and needs of individual customer and situations. According the demand, cost, competitor’s prices, etc. Showrooming - matching prices.

Question 24

International pricing-price escalation

Answer 24

Results from differences in selling strategies or market conditions.

Question 25

Initiating Price Changes

Answer 25

Initiating price cuts (excess capacity, falling demand, to dominate the market through lower costs), price increases (to meet higher costs or demand, price gouger)

Question 26

Buyer Reactions to price changes

Answer 26

More exclusivity, better made, being greedy, getiing a better deal, poorer quality.

Question 27

Responding to price changes

Answer 27

Competitor cutting prices - reduce price, raise perceived value, improve quality and increase price, launch low-price "freighter brand"

Question 28

Public policy issues in pricing

Answer 28

Price-fixing (set prices without talking to competitors) and predatory pricing (selling below cost to punish a competitor), retail price maintenance (a manifacturer cannot require dealers to charge a specified retail price), discriminatory pricing (sellers should offer the same price terms to customers, only if costs differ) and deceptive pricing (when a seller states prices or price savings that mislead consumers or are not actually available to consumers, scanner fraud)