MKT 100 Lecture Notes - Lecture 12: List Price, Retail

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4 Aug 2016
Department
Course
Professor
Week 12
Pricing Strategies
Profit Goal – Skimming
Company may have a target return that it needs to make
Maximize profits, brand new product in a new market
Setting a high initial price for a new product to cover the research and development costs
Communicate quality
Most suitable when
product has distinctive features strongly desired by consumers
product is in the early stages of the lifecycle when lower prices will not produce greater
total revenue due to relative lack of awareness
product has a patent for some of its technology/ design and is protected from
competitors entering the market
Market Share Goal – Penetration
Price tends to be lower as the company objective is to increase sales volume, achieve rapid
growth and discourage competition
i.e. end of season sales
a relatively low price is established to generate sales volume by removing the price barrier to
trial. Gaining a large market share at a low price discourages others from entering into the
market.
Most effective when…
mass market for the product category already exists
product is in the latter stages of the lifecycle where demand is related to price
economies of scale will result in substantial cost efficiencies that can be passed onto
consumers’ w/o affecting the product
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product category is already experiencing price competition or will occur after a new
product is introduced
Status Quo Goal – Meet the Competition
Companies don’t want to compete on price thus follow a leader
Brands are competing on image, features and benefits
Pricing Tactics
B2B Pricing Tactics
Seasonal Discounts
Reductions offered as financial incentives to stock the product in advance of the season
Manufacturer can reduce the amount of inventory they may have to stock prior to peak season
Cash Discounts
Reduction on the invoice the buyer pays promptly
Getting money earlier allows the seller to pay bills, invest or avoid borrowing costs
Trade Discounts and Promotional Allowances
Price reductions for marketing functions the buyer undertakes for the seller
Advertising allowances may be cash payments or a discount for featuring the manufacturers
product and promotion
Listing allowance – premium paid by seller to retailer to get its product on a shelf or in a better
shelf position
This practice may put smaller manufacturers at a disadvantage because it is more difficult for
them to pay these premiums
Quantity Discounts
Reduced prices in relation to the quantity purchased
B2C Pricing Tactics
Price Lining
Marketers set different price points for similar product to represent quality differences
Allows marketers to satisfy a range of tastes, perceived expertise and budgets
Price Bundling
Marketers combine a slow moving and a fast moving item together in one package
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