Pricing Strategies

Pricing Strategies

Ryan W.

MKT 441

February 23, 2006

5 Pricing Strategies

In this paper, I will cover five different pricing strategies used, by retailers and manufacturers, to sell their products. I will demonstrate how pricing products according to one of the five pricing strategies chosen works effectively for each company.

Loss Leader

Look in any newspaper circular, it is chocked full of advertisements from untold numbers of retailers who are trying to push "loss leaders" onto consumers. The loss leader is an item that is sold below cost and is designed to lure people to the store to shop. The loss leader might be a popular item, yet an obscure brand that is sold at a low price. I do not believe that the retailer cares if the loss leader sells or not; once you are in the store, the salespeople have the opportunity to "up sell" you to the nicer model or brand.

A perfect example of this is the circular for Stereo King; it is loaded with loss leaders with insanely low prices. Read the fine print and you will see that the advertised item is a no-name brand or a factory-refurbished item. In the Stereo King ad from February 19th, they are advertising a 7" Clarion monitor for only $99.00. This is a great price; it jumps off the page and says "you HAVE to buy this! It is such a good deal! Looking closer at the ad, it is a factory-refurbished item and there are limited quantities available.

I fell into this trap once and was drawn to the store by an ad. When I got to the store, the salesman said that the item was located at a different store and was "missing pieces"; it was not really a good deal. I learned the loss leader marketing scheme first hand before I knew the name of it. The salesman was religious in showing me the model that he would recommend and that he stocked in his showroom; unfortunately, it was a "no sale."

Suggested Retail Pricing

Most placed where you would expect to see suggested retail pricing is with items such as books, magazines, and the like. One place where you might not expect to find suggested retail pricing is with a car manufacturer. The Saturn car company is a great example of this pricing strategy.

I went with a friend to help her shop for a new car. Now, I fancy myself to be a fairly good negotiator; I had successfully negotiated several salesmen down to what we wanted to pay for a car based on some internet research. One car company that was not initially considered was Saturn. As we set out to test-drive some cars, we happened by a Saturn dealership; curious, we stopped in to see what was available.

The experience was noticeably different from the last five car lots we had just visited. The salesman did not bum rush us at the door - they made it "uncomfortably comfortable" (if that makes sense) to browse their inventory. Where it became weird was once my friend found the car she liked, it was my turn to take over. The price that the salesman told us could not be budged one cent. There was absolutely no room for negotiation.

The salesman explained to me that Saturn was a different kind of car company and that everyone pays the exact same amount for the cars. Desperate to see if the salesman could be swayed, I tried to throw in a free set of Saturn coffee mugs; the price was raised to include the mugs. For me, there was no feeling of a "win" and we continued shopping.

Price Lining

One perfect example I thought of as soon as I selected price lining as a topic was the company "Sleep Country USA." Sleep Country advertises on television and the radio. They have the jingle that enters your ear and festers in your brain. Mention the word mattress and someone will inevitably sing the jingle "Sleep Country USA, why buy a mattress anywhere else?" It makes me want to take a red-hot poker to my ear!

The commercials make an offer of purchasing any size mattress for $99.00 each piece as long as you buy the mattress, box spring, and bed frame. As you can imagine, a $99.00 bed will feel like a stiff dog bed. The salesman will then show you several other choices in models with ever increasing price tags. The entry-level $99.00 mattress is good in the sense that it is better than sleeping directly on the floor. The next level mattress might set you back a few more hundred dollars and might seem like the way to go, until they lead you to the top end model.

Finally, the salesman will show you the Tempurpedic Swedish sleep system. This mattress is the top of the line and you may not want to move once they get you to lay on it; in the end, you certainly will not purchase their $99.00 mattress.