In other words, there may be only a few price levels ($25, $50, and $75) for the ties, but a large assortment of them at each level. Neckties are often priced using a strategy known as price lining Pricing a group of similar products (e.g., neckties) at a few different price levels (e.g., $25, $50, and $75)., or price levels. Many times, two different stores carry the same product, but one store prices it higher because of the store’s perceived higher image. Some stores have a quality image, and people perceive that perhaps the products from those stores are of higher quality. occurs when a higher price is utilized to give an offering a high-quality image. Prestige pricing The practice of pricing a product higher to signal that it is of high quality. Source: Photo courtesy of Stubb’s Legendary Kitchen. See Figure 15.4 for an example of odd-even pricing. Likewise, a $20,000 automobile might be priced at $19,998, although the product will cost more once taxes and other fees are added. For example, instead of being priced $10.00, a product will be priced at $9.99. occurs when a company prices a product a few cents or a few dollars below the next dollar amount. Odd-even pricing A strategy in which a company prices products a few cents below the next dollar amount or a few dollars (for high-cost products such as automobiles) below the next hundred- or thousand-dollar value. Many pricing approaches have a psychological appeal. or price reductions should be considered when deciding on a starting price. Potential markdowns The amount (in dollars or percent) taken off the price. When products go on sale, companies mark down the prices, but they usually still make a profit. When companies add a markup A certain amount of money added to the cost of a product to set the final price., or an amount added to the cost of a product, they are using a form of cost-plus pricing. The strategy helps ensure that a company’s products’ costs are covered and the firm earns a certain amount of profit. Many stores use cost-plus pricing A pricing strategy where a certain amount of profit is added to the total cost of a product in order to determine its price., in which they take the cost of the product and then add a profit to determine a price. We’ll examine some common methods you often see. Lowe’s emphasizes their everyday low pricing strategy with the letters in their name plus the letter “t” (Lowest).Ĭompanies can choose many ways to set their prices. Companies like Walmart and Lowe’s use everyday low pricing. That is, the price initially set is the price the seller expects to charge throughout the product’s life cycle. 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.Īnother approach companies use when they introduce a new product is everyday low prices The practice of charging a low initial price for an offering and maintaining that price throughout the offering’s product life cycle. The goal is to get as much of the market as possible to try the product. Often, many competitive products are already in the market. is one in which a low initial price is set. In contrast to a skimming approach, a penetration pricing strategy A strategy in which an organization offers a low initial price on a product so that it captures as much market share as possible. Over time, the price of the product goes down as competitors enter the market and more consumers are willing to purchase the offering. Price skimming is a pricing approach designed to skim that top part of the gravy, or the top of the market. When the gravy is chilled, the fat rises to the top and is often “skimmed” off before serving. The easy way to remember a skimming approach is to think of the turkey gravy at Thanksgiving. This way, a company recoups its investment in the product faster. The idea is to go after consumers who are willing to pay a high price (top of the market) and buy products early. is when a company sets a high initial price for a product. The idea is to target buyers who are willing to pay a high price (top of the market) and buy products early. As mentioned in Chapter 7 "Developing and Managing Offerings", a skimming price strategy A strategy whereby a company sets a high initial price for a product. The same is true for DVD players, LCD televisions, digital cameras, and many high-tech products. Since then, the price has dropped considerably even for new models. Remember when the iPhone was first introduced, its price was almost $700. Think of products that have been introduced in the last decade and how products were priced when they first entered the market.
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