Pricing Strategy

Understanding Consumer Value

• Max price for yearbook? • We each place different value

(and willing to pay different price) for the same product

• Key to pricing is “understanding the value that buyers place on a product or service”

• How is that done?

Shirt Example

• Lax T-shirts: cost $4/shirt• Sell $10/shirt• Margin/profit: $6/shirt • Price markup is 150% (10-

4)/4=150%• Would lowering the selling

price to $7– Sell more shirts?– Increase total profits?

Pricing Factors• Supply and Demand– When was the last time

you clearly overpaid for a product? Why?

– Peak and off-peak rates• Costs– To ensure a profit

• Competition– Evaluate Verizon vs.

Comcast• Combination of the

three above

Market Share

• Market Share is the percentage of the total sales volume generated by all competitors in a given market.

• Iphones?

Tickets

• Some minor league baseball games are $6. Many don’t offer discount tickets. Why?

Substitutes – Brand Loyalty

• There are lots of products with available substitutes (cereals, detergents, etc.)

• Name a product where you would NOT accept a substitute?

Psychological Pricing• Odd/even pricing: suggests bargains • Prestige pricing: suggests

exclusiveness• Multi-unit pricing: suggests a bargain

by pricing items in multiples (1 for $.33 or 3 for $.99)

• Bundle pricing: All inclusive trip, Verizon

• Promotional pricing: holidays, rebates• Discount pricing: based on quantity,

seasonal items, terms (cash or paying by certain date)

Luxury vs. Necessity

• Gym membership• Cell phone• Cold medicine when you’re sick

Urgency of Purchase

• When was the last time you bought something because of a time restriction?

• HHS tickets going on sale – more at door?• Gas when your car was on empty• Infomercial with time winding down

Price wars

• Airline tickets, gasoline, computers• How much does price factoring in the three

products named above?• Is anyone loyal to an airline based on frequent

flyer miles (price & promotional tie in)?

Conclusion

• Create awareness to sell right product, at the right place, at the right price to the right people.