Blog Assignment 4

Pricing as Positioning Strategy
Marketers will often use price as a positioning strategy for their product. When they do this they will usually set the price higher than similar competition in order to give the impression that their brand is of higher quality than the competition. People will assume, whether correct or not, many times that the most expensive version is the best quality. One area in which you see this is in kitchen electrics. Certain brands of kitchen electrics have become somewhat of a status symbol amongst women because it is well known that certain brands are more expensive and assumed to be higher quality. One example of this is in coffee makers. If you compare different versions of the single cup coffee maker, they vary widely in price, but upon closer inspection don't actually differ that much in performance. If you compare the Breville single serve coffee maker (retails at $249 - http://www.surlatable.com/product/coffee+%26+tea/drip+coffee+machines/breville+single-serve+coffee+maker.do?sortby=ourPicks#) to the Keurig version (retails at $169 - http://www1.macys.com/catalog/product/index.ognc?ID=315152&CategoryID=44001) you will notice that aside from having a different style look, they are virtually the same machine, there is no technological superiority in the Breville model. In fact the description for it even states "Featuring Keurig’s patented brewing technology, the innovative shower head delivers the precise amount of water at the perfect temperature for balanced flavor." So simply put, you are getting the same exact thing in a different looking case for an extra $80!
New product pricing

Skimming
The practice of skimming is when a company will charge a high price when their product is first introduced and it is usually accompanied by a large marketing campaign. This strategy is typically used when the company realizes that their product is something that won't be copied immediately so they take advantage of being the only game in town so to speak. One great example of this practice is with new toys, especially if Christmas is coming! If you look at toy ads or commercials now you will notice that Disney is starting to heavily promote a new toy called Dance Star Mickey (http://www.toysrus.com/product/index.jsp?productId=4049903). The toy isn't even in the stores yet, but they are advertising it as a hot new toy and encouraging people to pre-order the doll for $69.99! This is obviously price skimming because they will not be able to charge this price for a dancing Mickey doll forever. They will undoubtedly drop the price significantly after Christmas. This is the tickle me Elmo craze all over again! Which by the way now sells for only $24.99.

Penetration
Penetration is when a firm will charge a low price for their product when it is introduced into the market in order to reach more people by undercutting the competition. This is used a lot in electronics. The newest product where I've noticed this pricing strategy employed is Amazon's latest version of the Kindle. They just released in the last couple of weeks their third generation of Kindle, which is not only thinner and has better features like a microphone, smaller size, longer battery life, more storage capacity, lighter weight and better screen contrast, but it is much cheaper than the competition. This has done more than rock the boat, I think it will sink the ship for a few of the other e-book readers out there that just won't be able to cut their price to this level. Amazon has offered the latest Kindle starting at only $139!

You can view the new kindle here:

http://www.amazon.com/Kindle-Wireless-Reader-Wifi-Graphite/dp/B002Y27P3M/ref=amb_link_353611822_4?pf_rd_m=ATVPDKIKX0DER&pf_rd_s=gateway-center-column&pf_rd_r=0G5WG419JPCZA1FBEA4B&pf_rd_t=101&pf_rd_p=1271573382&pf_rd_i=507846

Odd Number Pricing
Marketers use many subtle tactics in pricing to make us believe something about a product. One example is odd number pricing. For some reason, people will typically assume that something that ends with an odd number is a bargain. One store that uses this marketing tactic very well is Total Wine & More (http://www.totalwine.com/Main.aspx). They have signs in their stores and on their circulars reminding buyers that any wine with a price ending in 97 cents is at their "rock bottom" price. In fact, they hold to this statement so much so that they even exclude anything with a price ending in 97 cents from all promotions and coupons. This is a very effective marketing tool for them because it gives the buyer an immediate feeling of getting a bargain even though they might not know the true value of a certain bottle of wine. I also believe that it increases their sales because people who enjoy wine might buy more bottles than they originally intended if they perceive that they are getting a really good deal.

Loss Leader
Loss Leaders seem to be a favorite marketing tool of the grocery store industry. Every week they send out fliers filled with loss leader deals in the hope that they will entice you into their stores where you will not only purchase that one product at a great price, but you will also purchase other products that are not on sale. Unfortunately for the consumer, the products not on sale are typically no bargain at the grocery store. I found one such example in this week's advertisement from Frys ( http://frysfood.inserts2online.com/customer_Frame.jsp ), you can see in the middle slightly to the right is an add for a 64 ounce bottle of apple juice for only $0.99. As a mom that has bought a lot of juice, I can assure you this is a bargain. A bottle that size would typically sell for anywhere from $3-$5 or more depending upon the brand and store purchased. Frys is not having a moment of kindness for families in offering juice at a low price, they know that someone who buys juice probably also buys other kid foods like crackers, peanut butter, chips, etc. That is what they are hoping you will buy when you come into their store, because the other things will not be on sale and those are the items that they are hoping to make their profit on. I personally have a strong dislike for this marketing tactic because I don't like the idea of someone trying to get me into the store with one thing so they can over charge me on five other things. Unfortunately for the grocery stores this doesn't seem to be a very good tool because their margins are historically small and very few grocers actually make good money.

Multiple Unit Pricing
I must admit, I am the biggest sucker for multiple unit pricing. This is when a store will say if you buy product X it is $5, but if you buy two or more of X it will be $4 per item. I fall for it almost every time! You see this used a lot in clothing stores. I found a good example of it on Targets website in their school uniform section, they have the tag line "buy more, save more." I guess they haven't talked to my father who always told me I couldn't spend myself rich when I told him about how much I saved on my last purchase. If you click on this link (http://www.target.com/Girls-School-Uniform-Cherokee-Short-Sleeve/dp/B003BF7Q8K/ref=sr_1_9?ie=UTF8&searchView=grid5&keywords=school%20uniforms&fromGsearch=true&sr=1-9&qid=1280942510&rh=&searchRank=target104545&id=Girls%20School%20Uniform%20Cherokee%20Short-Sleeve&node=1038576|1287991011&searchSize=30&searchPage=1&searchNodeID=1038576|1287991011&searchBinNameList=subjectbin%2Cprice%2Ctarget_com_primary_color-bin%2Ctarget_com_size-bin%2Ctarget_com_brand-bin&frombrowse=0) you can see how Target has displayed this offer very well. They have colored the text red, just like the price so it guides your eye to read their tag line when you look at the price. In my experience I've noticed that this marketing tactic is typically used when the product is something that is either quickly consumable like food or when it is something that people like to have multiples of the product like clothing or art supplies. You won't see this used much in products that people wouldn't want more than one like an iPod or computer.