Chap: 11 Pricing Products: Pricing Strategies
A company sets not a single price, but rather a pricing structure that covers different items in its line.

New Product Pricing Strategies
Mainly two broad strategies:
1. Market-Skimming Pricing
2. Market-Penetration Pricing

Market-Skimming Pricing:
Setting a high price for a new product to skim maximum revenues layer by layer from the segments willing to pay the high price; the company makes fewer but more profitable sales. This strategy makes sense under certain conditions:
• The product's quality and image must support its higher price, and enough buyers must want the product at that price
• The cost of producing a smaller volume cannot be so high that they cancel the advantage of charging more
• Competitors should not be able to enter the market easily and undercut the high price

Market-Penetration Pricing:
Setting a low price for a new product in order to attract a large number of buyers and a large market share and the conditions are:
• The market must be highly price sensitive so that a low price produces more market growth
• Production and distribution costs must fall as sales volume increases
• The low price must help keep out the competition, and the penetration price must maintain its low price position- otherwise, the price advantage may be only temporary

Product Mix Pricing Strategies
The strategy for setting a product's price often has to be changed when the product is part of a product mix. In this case the firm looks for a set of prices that maximizes the profits on the total product mix. Five product mixing strategies are:
1. Product Line Pricing
2. Optional-Product Pricing
3. Captive-Product Pricing
4. By-Product Pricing
5. Product Bundle Pricing

Product Lie Pricing:
Setting the price steps between various products in a product line based on cost differences between the products, customer evaluations of different features, and competitors' prices. In many industries, sellers use well established price points for the products in their line.

Optional-Product Pricing:
The pricing of optional or accessory products along with a main product
For Example, a car buyer may choose to order power windows and a CD changer.

Captive-Product Pricing:
Setting a price for the products that must be used along with a main product, such as blades for a razor and film for a camera. In case of services, this strategy is called two-part pricing. The price of the service is broken down into a fixed fee plus a variable usage rate. For example, amusement parks charge admission plus fees for food, midway attractions, and rides over a minimum.

By-Product Pricing:
Setting a price for by-products in order to make the main product's price more competitive. If the by-products have no value and if getting rid of the, is costly, this will affect the pricing of the main product. Using by-product pricing, the manufacturer will seek a market for these by-products and should accept any price that covers more than the cost of storing and delivering.

Product Bundle Pricing:
Using this strategy, sellers combine several products and offer the bundle at a reduced price. Price bundling can promote the sales of products consumers might not otherwise buy, but the combined price must be low enough to get them to buy the bundle.

Price-Adjustment Strategies

There are six product price adjustment strategies:
1. Discount and Allowance Pricing
2. Segmented Pricing
3. Psychological Pricing
4. Promotional Pricing
5. Geographic Pricing
6. International Pricing

Discount and Allowance Pricing:

Discount: A straight reduction in price on purchases during a stated period of time.

i. Cash Discount: a price reduction to buyers who pay their bills promptly
ii. Quantity Discount: is a price reduction to buyers who buy large volumes
iii. Functional Discount: is offered by the seller to trade-channel members who perform certain functions, such as selling, storing, and record keeping. Also called a Trade Discount.
iv. Seasonal Discount: is a price reduction to buyers who buy merchandise or services out of season.

Allowances: Promotional money paid-by manufacturers to retailers in return for an agreement to feature the manufacturer's product in some way.

i. Trade-in allowance: are price reductions given for turning in an old item when buying a new one. These are most common in automobile industry and other durable goods.
ii. Promotional allowance: are payments or price reductions to reward dealers for participating in advertising and sales support programs.