PRICING

CONSIDERATIONS&

STRATEGIES

Lesson Objectives

•Identify pricing techniques that are used primarily in the consumer market

•Identify pricing techniques that are used primarily in business-to-business sales

Pricing Strategies

Two Main Strategies

1. Physiological Pricing

2. Discount Pricing

1. Psychological Pricing

Techniques that create an illusion or that make shopping easier for customers

A. Odd/Even Pricing

•Prices end in odd or even numbers

•Odd numbers convey bargain image ($19.99)

•Even numbers convey quality/high end ($100.00)

$2.99

B. Prestige Pricing

• Prices purposely set high to create image of quality

• Targeted toward markets who equate high price with quality

• Examples– Perrier Water– Nike – Air Jordan’s – Lexus

C. Multiple Pricing

•Targeted toward value-conscious markets

•Example: 3 for $.99 instead of $.33 each

$.99 ea.OR

3 for $2.50

D. Promotional Pricing

• Used with sales promotions

• Temporary price reduction

• Designed to increase store traffic

• Loss-leader pricing

• Special Event pricing– Back-to-school– 4th of July– Memorial Day

E. Price Lining

• All merchandise in one category priced at the same price

• All Warm-up Suits for: $39.99, $59.99, and $79.99

• Typical in Department Store setting

Advantages• Customers

differentiate between value

• Helps customers make decisions

• Allows store to target multiple markets

• Allows salespersons to “up sell” or “down sell” more easily

F. Yield-Management Pricing

• Pricing at different prices to maximize revenue when limited capacity is involved.

Concert and Sporting Event Seating

2. Discount Pricing

•Reductions in price given based on a buyer’s behavior•Targeted toward industrial sales

A. Cash Discounts• To encourage quick payment of bill• Example

2/10 net 30Read:

If paid by the 10th, receive 2% discount,OR

full amount due by the 30th of the month

3/15 net 28Invoice (bill) = $3200

Paid on the 8th of the month$3200 X .03 = $96

$3200 - $96 = $3104

B. Quantity Discounts

• Generally – the more you buy, the more you save

• Similar to multiple pricing for personal consumers

• To encourage large orders– Cumulative: over a period of time– Non-cumulative: one order/one time

C. Seasonal Discounts

• To encourage purchasing in advance of the customary buying period.

• “Early bird orders”• Helps organize

production and labor• Off-season resort

sales

E. Promotional Discounts

• Given for advertising or promoting manufacturer’s products

• % reduction in price • Allowance - free merchandise • Cooperative advertising – costs

shared

Review• What is the pricing technique used

primarily for the consumer market?

• Name the 5 kinds of psychological pricing.

• What is the pricing technique used primarily for the industrial market?

• Name the 4 kinds of discount pricing.