Marketing Management

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Grewal_8e__Ch15.pdf

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Chapter 15

Strategic Pricing Methods

and Tactics

Learning Objectives

Learning Objective 15.1 Identify three methods that firms use to set their

prices.

Learning Objective 15.2 Describe the difference between an everyday

low pricing (EDLP) strategy and a high/low strategy.

Learning Objective 15.3 Explain the difference between a price

skimming and a market penetration pricing strategy.

Learning Objective 15.4 Identify tactics used to reduce prices to

consumers.

Learning Objective 15.5 Identify tactics used to reduce prices to

businesses.

Learning Objective 15.6 List the pricing practices that are illegal or

unethical.

Considerations for Setting Price Strategies

EXHIBIT 15.1: Pricing Strategies

Value-Based Methods

Setting prices that focus on the overall value of the

product offering as perceived by the consumer:

Improvement Value

Method Cost of Ownership Method

These methods require a great deal of research to

be implemented successfully.

Value-Based Methods: Improvement Value

EXHIBIT 15.2 Improvement Value

Incremental Benefits Improved Value Benefit Weight Weighted Factor

Clarity 20% 0.40 8%

Range 40% 0.20 8%

Security 10% 0.10 1%

Battery life 5% 0.20 1%

Ease of use 30% 0.10 3%

Overall 1.00 21%

PROGRESS CHECK (1 of 3)

1.What are the three different considerations for

setting prices?

2.How can you use value-based methods for

setting prices?

Pricing Strategies

Everyday low

pricing (EDLP) High/Low Pricing

Everyday Low Pricing (EDLP) vs. High/Low Pricing

Create value for consumers in different ways.

EDLP reduces consumers’ search costs.

High/low provides the thrill of the chase for the lowest price.

In High/Low Pricing Consumers Use

New Product Pricing Strategies

Market Penetration Pricing

Price Skimming

Price skimming is often used for high-demand video

games like Far Cry 6 because fans will pay a higher

price to be one of the first to own the newest version.

©Chesnot/Getty Images

Source: Ubisoft Entertainment 11

Pricing Tactics Aimed at Consumers (1 of 2)

Pricing Tactics Aimed at Consumers (2 of 2)

Leasing/Rentals Price Bundling

Leader Pricing Price Lining

Business Pricing Tactics and Discounts

EXHIBIT 15.3 Business-to-Business Pricing Tactics

Tactic Description

Seasonal

discounts

An additional reduction offered as an incentive to retailers to order

merchandise in advance of the normal buying season.

Cash discounts An additional reduction that reduces the invoice cost if the buyer pays

the invoice prior to the end of the discount period.

Allowances Advertising or slotting allowances (additional price reductions) offered

in return for specific behaviors. Advertising allowances are offered to

retailers if they agree to feature the manufacturer's product in their

advertising and promotional efforts. Slotting allowances are offered to

get new products into stores or to gain more or better shelf space.

Quantity discounts Providing a reduced price according to the amount purchased

Uniform delivered

versus zone

pricing

Uniform delivered price: shipper charges one rate, no matter where

the buyer is located. Zone price: different prices depending on the

geographic delivery area.

PROGRESS CHECK (2 of 3)

1.What are some consumer-oriented pricing

tactics?

2.What are some B2B-oriented pricing tactics?

Legal and Ethical Aspects of Pricing

Deceptive or Illegal Price Advertising

Deceptive reference

prices

Loss-leader pricing

Bait and switch

Predatory Pricing

Price Discrimination

Is this price discrimination illegal?

Evelyn Nicole Kirksey/McGraw-Hill 19

Price Fixing

Horizontal price fixing Vertical price fixing

Gray Market Pricing

Uses irregular but not

necessarily illegal

methods.

Gray market for luxury

goods.

Stefano Rellandini/Alamy Stock Photo 21

PROGRESS CHECK (3 of 3)

1.What common pricing practices are considered

to be illegal or unethical?

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