Likewise, a $20,000 automobile might be priced at $19,998, although the product will cost more once taxes and other fees are added. For example, instead of being priced $10.00, a product will be priced at $9.99.
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Odd-even pricing occurs when a company prices a product a few cents or a few dollars below the next dollar amount. Many pricing approaches have a psychological appeal. Potential markdowns or price reductions should be considered when deciding on a starting price. When products go on sale, companies mark down the prices, but they usually still make a profit. When companies add a markup, or an amount added to the cost of a product, they are using a form of cost-plus pricing. The strategy helps ensure that a company’s products’ costs are covered and the firm earns a certain amount of profit. Many stores use cost-plus pricing, in which they take the cost of the product and then add a profit to determine a price. We’ll examine some common methods you often see.
PENETRATION PRICING MARKETING PLUS
Lowe’s emphasizes their everyday low pricing strategy with the letters in their name plus the letter “t” (Lowest).Ĭompanies can choose many ways to set their prices. Companies like Walmart and Lowe’s use everyday low pricing. That is, the price initially set is the price the seller expects to charge throughout the product’s life cycle. Penetration pricing is used on many new food products, health and beauty supplies, and paper products sold in grocery stores and mass merchandise stores such as Walmart, Target, and Kmart.Īnother approach companies use when they introduce a new product is everyday low prices. The goal is to get as much of the market as possible to try the product. Often, many competitive products are already in the market. In contrast to a skimming approach, a penetration pricing strategy is one in which a low initial price is set.
Over time, the price of the product goes down as competitors enter the market and more consumers are willing to purchase the offering. Price skimming is a pricing approach designed to skim that top part of the gravy, or the top of the market. When the gravy is chilled, the fat rises to the top and is often “skimmed” off before serving. The easy way to remember a skimming approach is to think of the turkey gravy at Thanksgiving. This way, a company recoups its investment in the product faster. The idea is to go after consumers who are willing to pay a high price (top of the market) and buy products early. As mentioned in Chapter 7 “Developing and Managing Offerings”, a skimming price strategy is when a company sets a high initial price for a product. The same is true for DVD players, LCD televisions, digital cameras, and many high-tech products. Since then, the price has dropped considerably even for new models. Remember when the iPhone was first introduced, its price was almost $700. Think of products that have been introduced in the last decade and how products were priced when they first entered the market.
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