L7-Pricing

Lesson 7 - Pricing
 * What is pricing?**
 * Pricing is the process of establishing and comnmunicating the value or cost of goods and services to customers.**

**Pricing Strategies**
There are many ways to **price ** a product. Let's have a look at some of them and try to understand the best policy/strategy in various situations.

**Premium Pricing. ** Use a high price where there is uniqueness about the product or service. This approach is used where a a substantial competitive advantage exists. Such high prices are charge for luxuries such as Cunard Cruises, Savoy Hotel rooms, and Concorde flights. **Penetration Pricing. ** The price charged for products and services is set artificially low in order to gain market share. Once this is achieved, the price is increased. **Economy Pricing. ** This is a no frills low price. The cost of marketing and manufacture are kept at a minimum. Supermarkets often have economy brands for soups, spaghetti, etc. **Price Skimming. ** Charge a high price because you have a substantial competitive advantage. However, the advantage is not sustainable. The high price tends to attract new competitors into the market, and the price inevitably falls due to increased supply. Manufacturers of digital watches used a skimming approach in the 1970s. Once other manufacturers were tempted into the market and the watches were produced at a lower unit cost, other marketing strategies and pricing approaches are implemented. Premium pricing, penetration pricing, economy pricing, and price skimming are the four main pricing policies/strategies. **They form the bases for the exercise **. However there are other important approaches to pricing. **Psychological Pricing. ** This approach is used when the marketer wants the consumer to respond on an emotional, rather than rational basis. For example 'price point perspective' 99 cents not one dollar. **<span style="color: #333333; font-family: 'Verdana','sans-serif'; font-size: 11pt;">Product Line Pricing. ** <span style="background: #ffff99; color: #333333; font-family: 'Verdana','sans-serif'; font-size: 9.5pt; margin: 0in 0in 0pt;">Where there is a range of product or services the pricing reflect the benefits of parts of the range. For example car washes. Basic wash could be $2, wash and wax $4, and the whole package $6. **<span style="color: #333333; font-family: 'Verdana','sans-serif'; font-size: 11pt;">Optional Product Pricing. ** <span style="background: #ffff99; color: #333333; font-family: 'Verdana','sans-serif'; font-size: 9.5pt; margin: 0in 0in 0pt;">Companies will attempt to increase the amount customer spend once they start to buy. Optional 'extras' increase the overall price of the product or service. For example airlines will charge for optional extras such as guaranteeing a window seat or reserving a row of seats next to each other. **<span style="color: #333333; font-family: 'Verdana','sans-serif'; font-size: 11pt;">Captive Product Pricing ** <span style="background: #ffff99; color: #333333; font-family: 'Verdana','sans-serif'; font-size: 9.5pt; margin: 0in 0in 0pt;">Where products have complements, companies will charge a premium price where the consumer is captured. For example a razor manufacturer will charge a low price and recoup its margin (and more) from the sale of the only design of blades which fit the razor. **<span style="color: #333333; font-family: 'Verdana','sans-serif'; font-size: 11pt;">Product Bundle Pricing. ** <span style="background: #ffff99; color: #333333; font-family: 'Verdana','sans-serif'; font-size: 9.5pt; margin: 0in 0in 0pt;">Here sellers combine several products in the same package. This also serves to move old stock. Videos and CDs are often sold using the bundle approach. **<span style="color: #333333; font-family: 'Verdana','sans-serif'; font-size: 11pt;">Promotional Pricing. ** <span style="background: #ffff99; color: #333333; font-family: 'Verdana','sans-serif'; font-size: 9.5pt; margin: 0in 0in 0pt;">Pricing to promote a product is a very common application. There are many examples of promotional pricing including approaches such as BOGOF (Buy One Get One Free). **<span style="color: #333333; font-family: 'Verdana','sans-serif'; font-size: 11pt;">Geographical Pricing. ** <span style="background: #ffff99; color: #333333; font-family: 'Verdana','sans-serif'; font-size: 9.5pt; margin: 0in 0in 0pt;">Geographical pricing is evident where there are variations in price in different parts of the world. For example rarity value, or where shipping costs increase price. **<span style="color: #333333; font-family: 'Verdana','sans-serif'; font-size: 11pt;">Value Pricing. ** <span style="background: #ffff99; color: #333333; font-family: 'Verdana','sans-serif'; font-size: 9.5pt; margin: 0in 0in 0pt;">This approach is used where external factors such as recession or increased competition force companies to provide 'value' products and services to retain sales e.g. value meals at McDonalds.