High-Low Pricing
Definition: A strategy where businesses set prices higher than competitors, then
periodically lower them through promotions or sales.
Example: A retail store prices a winter coat at $200 for most of the season but
discounts it to $120 during an end-of-season sale to attract bargain hunters and
clear inventory.
Loss Leader Pricing
Definition: Setting the price of one or more products below cost to attract
customers, hoping they will purchase additional full-priced items.
Example: A supermarket sells milk at a loss during a weekend sale, attracting
customers who then buy other groceries with higher profit margins.
Price Lining
Definition: Offering a product line with several items at specific price points,
creating tiers of choices that cater to different budget levels.
Example: A smartphone company releases three models: a basic version at $300, a
mid-range version at $600, and a premium version at $900. Customers can choose
based on their budget and desired features.
Psychological Pricing
Definition: Pricing that considers the psychological impact on consumers, such as
setting prices just below a round number to make the price seem lower.
Example: A retailer prices a product at $9.99 instead of $10.00. The slight
difference makes the product appear significantly cheaper, influencing the buyer's
perception.
Prestige Pricing
Definition: Setting prices higher to signal quality and exclusivity, appealing to
status-conscious consumers.
Example: A luxury car manufacturer prices its new model at $100,000, signaling
that it is a high-end product for affluent buyers looking for status and superior
quality.
Reference Pricing
Definition: Providing a price point against which customers can compare the actual
selling price, often used to show the value of a discount.
Example: An online store lists a pair of shoes with a reference price of $150, but
the actual selling price is $90. This comparison suggests to customers they are
getting a good deal, encouraging the purchase.
Traditional Pricing
Definition: A straightforward approach where prices are set based on cost-plus or
market-driven factors, without relying on psychological tactics or sophisticated
strategies.
Example: A bakery calculates the cost of ingredients, labor, and overhead for a loaf
of bread and adds a fixed profit margin to set the price at $3.00 per loaf.
Odd-Even Pricing
Definition: Pricing items just below an even number (odd pricing) or at an even
number (even pricing) to influence customer perception of the price.
Example: A retailer prices a T-shirt at $19.99 instead of $20.00, making it seem
more affordable and increasing the likelihood of purchase (odd pricing).
Conversely, a high-end restaurant prices a gourmet meal at $50.00 to give an
impression of premium quality (even pricing).
Multiple Unit Pricing
Definition: Offering a lower price per unit when multiple units are purchased
together, encouraging customers to buy in larger quantities.
Example: A supermarket offers a deal where a single can of soda costs $1.50, but
customers can buy a six-pack for $7.50, effectively reducing the price per can to
$1.25.
Bundled Pricing
Definition: Selling a package of multiple products or services at a single price,
which is often lower than the sum of purchasing each item individually.
Example: A cable company offers a bundle that includes internet, television, and
phone services for $99 per month, while purchasing each service separately would
cost $40 for internet, $60 for television, and $30 for phone, totaling $130.
Pre-Emptive Pricing
Definition: Setting prices lower than competitors to discourage new entrants into
the market or to drive out existing competitors, often used as an aggressive market
entry strategy.
Example: A new coffee shop opens in a neighborhood and offers premium coffee
at $2 per cup, significantly undercutting the local coffee shops that charge $4 per
cup. This low pricing strategy aims to capture market share quickly and weaken
the competition.
