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CHAPTER 11: Pricing Strategies - Coggle Diagram

- - - - Product quality and image must justify the high price.
      - The product should be well-differentiated to prevent competitors from undercutting its price.
      - The brand must be strong enough that customers will wait for lower prices.
      - Production costs for smaller volumes should not negate the benefits of higher pricing.
  - - - The market must be highly price-sensitive.
      - Production and distribution costs should decrease with increased sales volume.
      - Low prices should help keep out competition.
      - The market share gained must support long-term profitable revenue streams.
- - - - There should be few or no additional costs associated with bundling to allow a low combined price.
      - Mixed bundling (offering products both separately and as a bundle) usually leads to higher profits than offering products only separately or only in a bundle.
- - - - Cash Discounts: Price reductions for prompt payment (e.g., "2/10, net 30").
      - Quantity Discounts: Price reductions for buying large volumes.
      - Functional Discounts: Price reductions for trade-channel members performing specific functions.
      - Seasonal Discounts: Price reductions for off-season purchases.
    - - Trade-In Allowances: Price reductions for turning in old items when buying new ones, common in the automobile industry.
      - Promotional Allowances: Payments or price reductions for dealers participating in advertising and sales-support programs.
- - - - Price Increases: May be seen as a sign of exclusivity or greed, affecting customer perception.
      - Price Cuts: Could be perceived as a better deal or a reduction in quality, impacting the brand's luxury image.
    - - Cost Inflation: Rising costs due to factors like supply chain issues, labor shortages, and increased material costs can necessitate price increases.
      - Strong Demand: Unexpectedly strong demand may lead to price increases and product rationing.
      - Profit Improvement: A small price increase can significantly boost profits if sales volume remains unaffected.
      - Alternative Strategies: Companies can meet higher costs by improving efficiency, removing features, unbundling products, or using "shrinkflation" (reducing product size).
    - - Market Impact: Competitors are likely to react to price changes, especially in markets with few players and highly substitutable products.
      - Anticipating Reactions: Companies must assess how competitors will interpret and respond to price changes, considering factors like market share and policies.
    - - Circumstances for Price Cuts: Excess inventory, falling demand, strong competition, or a weakened economy may justify price cuts to boost sales and market share.
      - Market Domination: Cutting prices to dominate the market through lower costs and economies of scale.
      - Price Premium: Lowering prices is attraction but difficult to reverse, so it should be done with caution.
  - - - Reduce Price: Lowering prices to match the competitor, which may protect market share but reduce short-term profits.
      - Maintain Price and Raise Perceived Value: Improving communications to highlight the product's value over the competitor's, which may be more cost-effective than cutting prices.
      - Improve Quality and Increase Price: Enhancing product quality to justify a higher price, preserving higher margins.
      - Launch a Fighter Brand: Introducing a lower-priced item or brand to compete in price-sensitive segments, though this risks tarnishing the main brand's image.