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Lecture 6

MKT 304 Lecture 6: New Product Pricing and Product Mix Pricing

Course Code
MKT 304
Matthew Wilson

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New Product Pricing and Product Mix Pricing:
New Product Pricing
When pricing new products, companies often choose:
Market skimming pricing
Market penetration pricing
Market Skimming pricing:
Setting a high price for a new product to “skim” revenue from segments willing to pay
the high price
Fewer, but more profitable, sales are made
Good for…
o A high quality or good image to support the high price
o The benefits of a high price must outweigh costs of low volume
o Barriers to entry so that competitors cannot easily enter the market and undercut
Market Penetration:
Setting a low initial price in order to “penetrate” the market quickly and deeply
Can attract a large number of buyers quickly and win a large market share
Good when..
o You have a price sensitive market
o Economics of scale (cost’s fall as sales volume increases)
o High market share creates a barrier to entry (competition can be kept out of the
market this way)
Product Mix Pricing
Setting a price can depend on whether the product is part of a product mix. When a product is
part of a product mix, there are five pricing strategies:
1. Product line pricing
2. Optional product pricing
3. Captive product pricing
4. By-product pricing
5. Bundle pricing
Product line pricing
Set your prices at steps between various product in a line, based on differences in costs, customer
evaluations and competitors prices.
Optional Product Pricing
Set a price to optional items or accessories that could be purchased to go with a main product or
-buying a meal during your flight
-paying extra for more leg room
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