PRICING STRATEGIES

Pricing Strategy: Objectives

Maximum long-run profits Maximum short-run profits Growth Stabilize market Desensitize customers to price Maintain price-leadership arrangement Enhance image of firm and its offerings Be regarded as fair by customers (ultimate) Help in the sale of weak items in the line Discourage others from cutting prices

Pricing Factors: Problems

Decline in sales. Higher or lower prices than competitors. Excessive pressure on middlemen to generate sales. Imbalance in product line prices.

Distortion vis--vis the offering in the customers perceptions of

the firms price.

Frequent changes in price without any relationship to environmental realities.

Pricing Factors: Cost

Fixed and variable costs are the major concerns of a pricer. In addition, the pricer may sometimes need to consider other types of costs, such as out-of-pocket costs, incremental costs, opportunity costs, controllable costs, and replacement costs. To study the impact of costs on pricing strategy, the following three relationships may be considered: The ratio of fixed costs to variable costs The economies of scale available to a firm. The cost structure of a firm vis--vis competitors.

Pricing Factors : Competition

Published competitive price lists and advertising Competitive reaction to price moves in the past Timing of competitors price changes and initiating factors Information on competitors special campaigns Competitive product line comparison Assumptions about competitors pricing/marketing objectives Competitors reported financial performance Estimates of competitors costsfixed and variable Expected pricing retaliation Analysis of competitors capacity to retaliate Financial viability of engaging in price war Strategic posture of competitors Overall competitive aggressiveness

Pricing Factors: Demand

Ability of customers to buy. Willingness of customers to buy. Place of the product in the customers lifestyle (whether a status symbol or a product used daily). Benefits that the product provides to customers. Prices of substitute products. Potential market for the product (is demand unfulfilled or is the market saturated?).

New Products: Skimming Strategy

Definition: Setting a relatively high price during the initial stage of a products life. Objectives To serve customers who are not price conscious while the market is at the upper end of the demand curve and competition has not yet entered the market. To recover a significant portion of promotional and research and development costs through a high margin.

New Products: Penetration Strategy

Definition: Setting a relatively low price during the initial stages of a products life. Objectives: To discourage competition from entering the market by quickly taking a large market share and by gaining a cost advantage through realizing economies of scale

Established Products: Maintain the Price

Definition: To maintain position in the marketplace (i.e., market share, profitability, etc) Objectives: Maintain the existing Status

Established Products: Reduce the Price

Objectives: To act defensively and cut price to meet the competition. To act offensively and attempt to beat the competition. To respond to a customer need created by a change in the environment.

Established Products: Increasing the Price

Objectives: To maintain profitability during an inflationary period. To take advantage of product differences, real or perceived. To segment the current served market.

Price Flexibility Strategy: One Price

Definition: Charging the same price to all customers under similar conditions and for the same quantities. Objectives: To simplify pricing decisions. To maintain goodwill among customers.

Price Flexibility Strategy: Flexible Pricing

Definition: Charging different prices to different customers for the same product and quantity. Objective: To maximize short-term profits and build traffic by allowing upward and downward adjustments in price depending on competitive conditions and how much the customer is willing to pay for the product.

Bundling-Pricing Strategy

Definition: Inclusion of an extra margin in the price to cover a variety of support functions and services needed to sell and maintain the product throughout its useful life. This strategy is very common in the software business, in the cable television industry (for example, basic cable generally offers many channels at one price), and in the fast food industry in which multiple items are combined into a complete meal.

Price Leadership Strategy

Definition: This strategy is used by the leading firm in an industry in making major pricing moves, which are followed by other firms in the industry. Objectives: To gain control of pricing decisions within an industry in order to support the leading firms own marketing strategy (i.e., create barriers to entry, increase profit margin, etc.).

Pricing Strategy to Build a Market

Definition: Setting the lowest price possible for a new product

Objectives: To seek such a cost advantage that it cannot ever be profitably overcome by any competitor.

PRICING STRATEGIES OF VARIOUS RETAILERS

WALMART:
Wal-Mart's pricing strategy is "everyday low prices," which means day in and day out, Wal-Mart's customers can rest assured knowing the goods they are buying are offered at prices lower than they would be at other stores that use a high-low pricing strategy. Using an everyday low prices strategy, Wal-Mart positions itself as a reliable destination for consumers who want to find products at good value.

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