Quiz 21: Setting Prices
Price skimming: When a company launch a new product, they adopt price skimming as the pricing strategy that focuses on maximizing the profits. Penetration pricing: It is termed as a marketing technique where the company launch its new product at a price which is lower than what his competitors set. The company starts to increase the price of its product after it has gained customer base and large market share. (a)Short airline flights between cities in Florida: Penetration pricing is used because here the marketers suspect that the competitors can enter the market easily. The airlines basically schedule the flights with some premium ticket price. As the journey date comes closer, the price of the tickets becomes cheaper so as to attract the customers. Airline makes no money if the seats are empty, while the loss to them of selling the tickets at reduced prices costs very little. (b)A high definition DVD player: This is an example of price skimming, as when the DVD player is launched premium is being charged and near the end of its life cycle, the lowest prices are being charged. (c)A backpack or book bag with a lifetime warranty: This is an example of price skimming, when the bags are launched a premium price is being charged and towards the end of its life cycle the lowest prices are being charged. (d)Season tickets for a newly franchised NBA basketball: This is an example of penetration pricing. The NBA basketball association charge premium on the price of the ticket. As the date of the event comes closer, the association reduces the price of the customers to attract the customers. NBA basketball association will make no money if the seats are empty on the day of the event, while the loss to them of selling the tickets at reduced prices costs very little.
JCPenney has adopted everyday low price concept to influence the customer and make the customer realize that every day low price is distinctive from any other form of sales that various departmental stores adopt. It also has brought in an unique way of mailing its magazine like merchandise catalogs through mails without the price. JCPenney's merchandise, therefore, are evaluated by customers without considering the price and that matters a lot in adding value to its merchandise successfully. Apart from this it has now made a logo looking good and new and a red-outlines square with its initial "jcp".
Six stages in the process of establishing prices: 1. Development of the pricing objectives: • Pricing objectives are defined as the goals which states what the organization wants to attain through pricing. • The basis for making decision for other stages of pricing. • It is essential to be consistent with the organization's overall marketing objectives. • Both short-term and long-term multiple objectives are used. 2. Target market's evaluation of price: • The importance of price is dependent on the type of target market, product and the situation when the product is purchased. • The attributes of the price and quality of the product are combined. • The customers distinguish among the competing brands. 3. Evaluation of competitor's pricing information: • The comparative shoppers are the source of competitor's pricing information, defined as people who collect the data systematically based on the competitor's prices. • The importance of price to the customers is determined. • It helps the marketers in setting the appropriate and competitive prices for their products. 4. Selection of a basis for pricing: • The prices are based on the dimensions of demand, competition and cost. • The selection of a basis for pricing to use id affected by the structure of the market of the industry, the characteristics of the customers, the type of the product and the market share of the brand corresponding to competing brands. 5. Selection of a pricing strategy : • It is termed as a course of action designed to attain the marketing and pricing objectives. • Differential pricing comprises of: • Pricing for Secondary market- Different markets having different prices. • Negotiated pricing- Bargaining • Random discounting- Unsystematic • Periodic discounting- Systematic • The pricing of new products consists of: • Price skimming - Starting with high price • Penetration pricing - Starting with low price 6. Determination of specific price: • The manner in which pricing is used in marketing mix affects the final value of the product. • For making adjustments in the marketing mix, the pricing is convenient and flexible.