Pricing and credit strategies

Image, competition, value

Competition and pricing

  • must take into account competitors’ prices, but it is not always necessary to match or beat them.
  • to differentiate a company’s products and services

Focus on value

  • the “right” price for a product or service depends on the value it provides for a customer.

Objective value - products and services is what customers would be willing to pay if they understood perfectly the benefits that a product or service delivers
Perceived value - determines the price customers are willing to pay.



Price conveys image

  • sends important signals to customers like quality, uniqueness
  • to understand the target market and identify how much customers are willing to pay rather than how much to charge.

Dealing with rising costs

  • Communicate with customers
  • Add a surcharge
  • Focus on improving efficiency
  • Offer products in smaller sizes or quantities

Pricing techniques for introducing new product

Three Goals

  1. Getting the product accepted
  • Revolutionary products
  • Evolutionary products
  • Me-too products
  1. Maintaining market share as competition grows
  2. Earning a profit

Three Pricing strategies

  1. Penetration
  • used by businesses to attract customers to a new product or service by offering a lower price during its initial offering.
  1. Skimming
  • charges a high initial price and the gradually lowers the price to attract more price-sensitive customers
  1. Life cycle pricing
    selling products in which pricing correlates with a product’s location in its life cycle which are launch, growth, maturity and declination.

Pricing established goods

Dynamic pricing

Leader pricing

Freemium pricing

Discounts (markdowns)

Price lining

Bundling

Odd pricing

Suggested retail prices

Pricing for manufacturers

Absorption costing

  • traditional method of product costing in which all manufacturing and overhead costs are absorbed into the product’s total cost.

Variable or direct costing

  • product costing method that includes in the product’s costs only those costs that can vary directly with the quantity produced.

Cost-plus pricing

  • establishes a price that covers the cost of direct materials, direct labor and a desired profit margin.

Impact of Credit on Pricing

Installment credit

  • financed over time and often requires small business owners to turn to local banks and credit unions

Trade credit

  • also referred to as customer charge accounts, can be a drain on small business cash reserves.

Debit cards

  • Shoppers make almost 53 billion debit card transactions, totaling $2.1 trillion each year.

Layaway

  • purchasing method by which a consumer places a deposit on an item to “lay it away” for later pickup when they come back and pay the balance.

Mobile wallets

  • Applications that link a smart phone or tablet to a credit or debit card, transforming the device into a digital wallet.