Product­Bundle Pricing

Product­Bundle Pricing

product­bundle pricing Using, product­bundle pricing, sellers often combine several of their products and Combining several

offer the bundle at a reduced price. Thus theatres and sports teams sell season products and offering

tickets at less than the cost of single tickets; hotels sell specially priced packages the bundle at a reduced

that include room, meals and entertainment; computer makers inelude attractive price.

software packages with their personal computers. Price bundling can promote the sales of products that consumers might not otherwise buy, but the combined

price must be low enough to get them to buy the bundle. 1 "

In other cases, product­bundle pricing is used to sell more than the customer really wants. Obtaining a ticket to an exclusive sports event is difficult, but World Cup football finals tickets are available to people willing to buy them bundled with

a supersonic Concorde flight.

Price­Adjust merit Strategies • 725

Table 17.2

Price adjustment strategies

DISCOUNT SEGMENTED

PSYCHOLOGICAL

VALUE

PROMOTIONAL GEOGRAPHICAL INTERNATIONAL

AND PRICING

PR1CFNG ALLOWANCE PRICINT,

Adjusting prices to prices to allow

Reducing Adjusting

Adjusting

Adjusting Temporarily Adjusting

prices in reward

prices for

prices to

reducing

prices to

international customer

for dit't'erences psychological

offer the

prices to

account

markets responses products, and

in customers

geographic such as

combination short­run

location of paying

locations

of quality

sales

customers early or

and service

at a fair

promoting

price

the product

Price­Adjustment Strategies

Companies usually adjust their basic prices to account for various customer differences and changing situations. Table 17.2 summarizes seven price­adjust­ ment strategics: discount and allowance pricing, segmented pricing, psychologi­

cal pricing, promotional pricing, ­value pricing, geographical pricing and international pricing.

Discount and Allowance Pricing

Most companies adjust their basic price to reward customers for certain responses, such as early payment of bills, volume purchases and off­season

buying. These price adjustments ­ called discounts and allowances ­ can take many forms.

A cash discount is a price reduction to buyers who pay their bills promptly, A cash discount typical example is '2/10, net 30'. which means that although payment is due

A price reduction to within 30 days, the buyer can deduct 2 per cent if the hill is paid within 10 days.

buyers ­teho pay their The discount must be granted to all buyers meeting these terms. Such discounts

bills promptly. are customary in many industries and help to improve the sellers' cash situation

and reduce bad debts and credit­collection costs.

A quantity discount is a price reduction to buyers who buy large volumes. A quantity discount typical example might be 'K10 per unit for less than 100 units, $9 per unit for 100

A price reduction to or more units'. Wine merchants often give 'twelve for the price of eleven' and

buyers who buy targe Makro, the trade warehouse, automatically gives discounts on any product bought

­volumes. in bulk. Discounts provide an incentive to the customer to buy more from one given

seller, rather than from many different sources.

726 • Chapter 17 Pricing Strategies

Promotional pricing: companies often reduce their prices temporarily to produce sales.

A quantity premium is sometimes charged to people buying higher volumes. quantity premium

In Japan it often costs more per item to buy a twelve­pack of beer or sushi than

A swre/iarge paid try smaller quantities because the larger packs are more gift able and therefore less (wyers who purchase

price sensitive. Quantity surcharges can also oecur when die product being high volumes of a

bought is in short supply or in sets ­ for example, several seats together at a 'sold­ product.

out' rock concert or sports event ­ and some small restaurants charge a premium functional discount

to large groups. Similarly, in buying antiques, it costs more to buy six complete (trade discount)

place settings of cutlery than a single item. In this case the price will continue to

A price reduction offered increase with volume, eight place settings costing more than six, and twelve place by [he seller to trade

settings costing more than eight. Quantity premiums are more common than channel members that

people imagine, and that is why they work. Consumers expect prices to deerease perform certain

with volume and so do not check unit prices. This allows retailers to slip in high­ functions, such as

margin items. Quantity surcharge increases with the variety and complexity of selling, storing and

pack sizes and, in some markets, over 30 per cent of ranges include some quantity record keeping.

surcharging. 11

A trade discount (also called a functional discount) is offered by the seller to seasonal discount

A price reduction to trade channel members that perform certain functions, such as selling, storing buyers who buy

and record keeping. Manufacturers may offer different functional discounts to merchandise or services

different trade channels because of the varying services they perform, but manu­ out of season.

facturers must offer the same functional discounts within each trade channel.

A seasonal discount is a price discount to buyers who buy merchandise or trade­ill allowance

services out of season. For example, lawn and garden equipment manufacturers

A price reduction given will offer seasonal discounts to retailers during the autumn and winter to for turning in an old

encourage early ordering in anticipation of the heavy spring and summer selling item when buying a new

seasons. Hotels, motels and airlines will offer seasonal discounts in their slower one.

selling periods. Seasonal discounts allow the seller to keep production steady during the entire year.

promotional allowance Allowances are another type of reduction from the list price. For example,

A payment or price reduction to reward

trade­in allowances are price reductions given for turning in an old item when dealers for particapting

buying a new one. Trade­in allowances are most common in the car industry, but are in advertising and sales­

also given for other durable goods. Promotional allowances are payments or price support programmes.

reductions to reward dealers for participating in advertising and sales­support programmes.

Price­Adjustment Strategies • 727