“Pricing is where management feel the most pressure to

perform, and the least certain they are of doing a good job”
Professor Robert Dolan (Harvard) :1995

Price = The amount of money charged for a product or

service, or the sum of the values that consumers exchange
for the benefits of having or using the product or service.

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 Skimming Pricing
• High pricing in Introductory stage of PLC when:
– Innovative product likely to appeal
– Quantity available for sale low initially
– Need to recover high R&D and promotional costs
– Serving customers who are not price conscious
– Competition has not yet entered market
– No close substitute
– Long-term sustained demand is uncertain

• Heavy promotional expenditure needed to

educate and induce trial of new product
• Provides opportunity to reduce prices later for
mass market, before competition enters

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 Penetration Pricing
• Pricing low (sometimes lower than cost) to achieve
‘penetration’
– Quantity available for sale is high
– Requires high elasticity of demand in segment

• Higher market share and experience lead to lower

costs, enabling Stars to become Cash Cows
• Sustained demand likely: losses recoverable later in PLC
• Can deter potential competitors from entering market
• Ultimate aim is cost leadership in market segment

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 Product Mix Pricing Strategies

 Aim to maximize the profits from the total product mix

Product Line Pricing

Setting Price Steps Between Product Line Items
May be based on cost differences, consumer value or competitor prices
i.e. Toyota’s range of cars (Echo to Lexus)
•A portfolio approach to pricing - seek to maximise profits of
entire firm rather than for each individual product.
•Aim is to strengthen the positioning of the individual products AS A LINE
within the market, so as overall sales, revenues and profits are maximised.

Optional-Product Pricing
Pricing Optional or Accessory Products
Sold With The Main Product
i.e. Car Options
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 Product Mix Pricing Strategies
Captive-Product Pricing
Pricing Products That Must Be Used
With The Main Product
Supplies for main product may be relatively expensive
i.e. Razor Blades, Cartridges, Software
In case of services: Two-Part pricing
Fixed fee and a variable usage fee.
Examples: Amusement parks, Hotels etc

By-Product Pricing
Pricing Low-Value By-Products To Get Rid of Them
Sales proceeds may help cover cost of main product

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 Product Mix Pricing Strategies
Product-Bundle Pricing
Pricing Bundles Of Products Sold Together
The package price should be lower than the additive prices
of included products
i.e. Season Tickets, Computer Makers, Alarm systems
With monitoring included, BMW price including 3
years service & roadside Emergency Assistance
•Encourages ongoing relationship with customer
•Inflates price without perhaps increasing value!
eg, price of MSWord vs. MSOffice suite
•May be good strategy for moving low volume products

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 Segmented Pricing

Segmented
Adjusting Prices to Allow
for Differences in Customers,
Products, or Locations.

Customer Eg. student/senior discounts

Product Form
different versions eg.
Packaging
Location eg. country areas
Time to reflect different demand
levels
eg. Big festivals
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