Pricing and Demand Approaches In this learning activity, we will develop skills related to explaining the approaches to pricing and the major factors considered in arriving at a final price. Four common approaches to finding an approximate price level are (1) demand-oriented, (2) cost-oriented, (3) profit-oriented, and (4) competition-oriented approaches. Demand-oriented approaches emphasize factors underlying expected customer tastes and preferences more heavily than such factors as cost, profit, and competition when selecting a price level. Can you use demand oriented approaches to price products? See if you can apply each approach to the following three products. 1. Skimming pricing: A firm introducing a new or innovative product can use skimming pricing, setting the highest initial price that customers really desiring the product are willing to pay. As the demand of these customers is satisfied, the firm lowers the price to attract another, more price-sensitive segment. Firms may adopt a skimming strategy because many prospective customers are willing to buy the product immediately at the initial high price to make these sales profitable. a) If you are pricing a shirt using skimming pricing, you would charge: b) If you are pricing an airline ticket using skimming pricing, you would charge: c) If you were pricing a concert ticket using skimming pricing, you would charge: 2. Penetration Pricing: Setting a low initial price on a new product to appeal immediately to the mass market is penetration pricing, the exact opposite of skimming pricing. Sometimes penetration pricing may follow skimming pricing so that firms may first recoup initial research and development costs and then appeal to a broader segment of the population to increase market share. a) If you are pricing a shirt using penetration pricing, you would charge: b) If you are pricing an airline ticket using penetration pricing, you would charge: c) If you were pricing a concert ticket using penetration pricing, you would charge: 3. Prestige Pricing: Prestige pricing involves setting a high price so that quality- or status-conscious consumers will be attracted to the product and buy it. Products with an element of prestige pricing in them may sell worse at lower prices than at higher ones because buyers tend to associate a lower price with lower quality. a) If you are pricing a shirt using prestige pricing, you would charge: b) If you are pricing an airline ticket using prestige pricing, you would charge: c) If you were pricing a concert ticket using prestige pricing, you would charge: Price Lining: Often a firm that is selling not only a single product but a line of products may price them at a number of different specific pricing points, which is called price lining. Learning Activity - Marketing 2150 Spring 2020 Chapter 9 Pricing a) If you are pricing a line of shirts using price lining, you would charge: b) If you are pricing different classes of airline tickets using price lining, you would charge: c) If you were pricing different seats at a concert using price lining, you would charge: Odd-Even Pricing: Odd-even pricing involves setting prices a few dollars or cents under an even number ($599.99 vs. $600.00). The effect is psychological and there is some evidence that this does work. However, research suggests that overuse of odd-ending prices tends to reduce its effect on demand. a) If you are pricing a shirt using odd-even pricing, you would charge: b) If you are pricing an airline ticket using odd-even pricing, you would charge: c) If you were pricing a concert ticket using odd-even pricing, you would charge: Bundle Pricing: Bundle-pricing is the marketing of two or more products in a single "package" price and is based on the idea that consumers value the package more than the individual items. It often provides a lower total cost to buyers and lower marketing costs to sellers. a) If you are pricing a shirt using bundle pricing, you would charge: b) If you are pricing an airline ticket using bundle pricing, you would charge: c) If you were pricing a concert ticket using bundle pricing, you would charge: Yield Management Pricing: Yield management pricing is the charging of different prices to maximize revenue for a set amount of capacity at any given time. This is often used by airlines, hotels, and car rental firms engaged in capacity management by varying prices based on time, day, week, or season to match demand and supply. a) If you are pricing a shirt using yield management pricing, you would charge: b) If you are pricing an airline ticket using yield management pricing, you would charge: c) If you were pricing a concert ticket using yield management pricing, you would charge: