This website uses cookies to ensure you have the best experience. Learn more

Product Pricing Essay

1488 words - 6 pages

Product Pricing
The cost of an “everyday low price” toy: $19.95. The cost of a Rolex watch: $2,465. A great paper explaining why corporations put these prices on products: priceless. Wal-Mart has become the leader in “everyday low price” pricing, and the number one retailer has brought many businesses to their demise because of their pricing strategy. Recently, Wal-Mart has expanded their sales niche to the toy department putting many specialty toy stores near or completely out of business. This paper will discuss how Wal-Mart priced their line of toys, why Wal-Mart used toys as “loss leaders” to attract customers, and two alternate methods of pricing marketers can use based on demand and reputation.
Toy Pricing
Pricing is an important aspect of every business. Chief Financial Officer’s (CFO) use pricing to create financial projections, establish a break-even point, and calculate profit and loss margins (Power Point, 2005). It is the only element in the marketing mix that produces revenue. Price is also one of the most flexible elements of the marketing mix as it can be changed very quickly. This is usually done to beat competitor prices in an attempt to fix the product’s market value position very low (Anderson & Bailey, 1998). After all, high prices make it difficult to become the market share leader. The leading US retailer, Wal-Mart, is an expert at low product pricing as evident in 2004 with $250 billion dollars in sales to their 138 million weekly shoppers. However, they are also responsible for reducing prices so low that it drives specialty stores out of business. This is the effect Wal-mart has had on many toy stores and has almost closed the doors of the famous toy store Toys “R” Us Inc.
Wal-Mart set extremely low prices on toys in a very successful pricing strategy to attract customers and become the leader in toy sales (Grant, 2004). This pricing strategy is called market penetration pricing. Penetration pricing is used to enter the market quickly and win a large market share (Anderson & Bailey, 1998). These low prices have taken their toll on toy stores. Toys “R” Us is now the second largest toy seller in the U.S. behind Wal-Mart. Toys “R” Us was recently bought for $6.6 million by investors who hope to transform the store into a more viable store for the entire family (D’Innocenzio, 2005). Other toy stores are not as fortunate. FAO Inc., parent of toy store FAO Schwarz, filed for their second bankruptcy in 2003 and KB Toys filed for bankruptcy in January 2005, saying it would close nearly 400 stores (Bhatnagar, 2004). Wal-Mart has certainly made a name in toy sales with their pricing strategy, but left much money “on the table” in the process. Wal-Mart has recently announced their plans not to lower their toy prices as much as last year, yet still keep prices lower than toy stores like Toys “R” Us (Grant, 2004).
Loss Leaders
A loss leader is a product sold below cost to draw customers into a store where they are likely...

Find Another Essay On Product Pricing

The Ethics of Microsoft’s Product Pricing Structure

3465 words - 14 pages The Ethics of Microsoft’s Product Pricing Structure Introduction Microsoft, currently one of the world’s biggest and most influential software companies, was found in 1975 by William Gates and Paul Allen.[1] It quickly positioned itself as a leader in the software community and due to the strength growth of its user base for the Windows operating system and numerous other products, it became both widely popular and widely hated. Many

How the Pricing Strategy of a Product Can Affect Revenue

1344 words - 6 pages Topic: Pricing Strategy Introduction All goods and services offer some utility or power to satisfy wants. This utility is the individual preference associated with each goods. The sum of all the values that consumers exchange for the benefits of using the product or service is called the price of that product. It can mean “rent, tuition fee, fare, rate, interest, toll, premium, honorarium, dues, assessment, retainer, salary, commission, wage

Marketing Plan Phase III

1737 words - 7 pages Marketing Plan Phase III PAGE 2 Marketing Plan Phase III PaperShahram DashtipourJudge Edward SingletonMelissa KlineCruz MaldonadoUniversity of PhoenixGroup I.D. WH06BSM03Prof. Richard HartmanMKT 421 - MarketingJuly 5, 2007Pricing StrategyPricing strategies take into account the forgotten "P," (Pricing), positioning. Speak Easy is a new product that will enter the market in the beginning position of the lifecycle, allowing flexibility in any

Pricing Strategies

1200 words - 5 pages disadvantages for each.COST ORIENTATED PRICINGThe accountant wishes the hotel group to use cost orientated pricing. This includes four different methods which are; cost plus pricing, factor pricing, break even pricing and actual cost approach. These are all based around the cost of the product or service.Cost Plus PricingThis is the most basic form of cost orientated pricing. It involves a % mark-up on an established price. The basic equation for this is

Pricing and Retail Strategy of Intuit

918 words - 4 pages tax and small to medium sized business finance solutions market (Lange, 2013). With such a large network of varied methods a consumer can purchase one of Intuit’s products or services pricing strategies may vary from one product to another, or from one seller to another. TurboTax TurboTax is the leading do-it-yourself tax preparation software or online service in America with a considerable depth of products. TurboTax software is sold directly

The New Price Discrimination

960 words - 4 pages of variable pricing can benefit the consumer. She points out that many companies have been using this method of pricing for some time. Most consumers understand that paying top dollar instead of buying at a discount implies that the price includes the convenience of having that item now instead of waiting for it to go on sale. It is convenience we are buying along with the product or service (Wicker, 2012). This new strategy is not just for

Pricing in the service industry

847 words - 3 pages cost-oriented approaches, the major advantage of the extended cost-oriented approach is that it incorporates premium factors into managerial profit-pricing consideration. Also, the extended approach, to a certain extent, considers the competitive advantages of product differentiation in service pricing. The major disadvantage is that the service characteristic premium increases the complexity of the pricing task. Premium factors are very difficult

Price Gaming is a Tricky Business

1492 words - 6 pages prices. These methods are often questioned on ethical and moral standards. Methods that are used in determining price can affect how people thing about quality of a product or service. Some consumers might purchase the more expensive product believing that the product may be of better quality because it is more expensive. (Market Pricing: Psychological Method, 2014) In methods such as the one mentioned above, consumers are being tricked into

Penetration Pricing

2479 words - 10 pages Penetration pricing is a pricing strategy whereby an organisation introduces its goods or services to consumers at a comparatively lower price than the existing market price. The fundamental objective of such an approach is attracting consumers to the product in the hope that the consumer will establish a fondness or a need for the product. As a consequence, organisations use this strategy as a means to ultimately gain a higher market share for

Product Mix: Toyota ZARA

903 words - 4 pages Toyota’s product mix could be the possible variants of Lexus model (ES300, ES 350, IS Series). 2. Kotler and Keller define six product-mix pricing methods: product-line pricing, optional-feature pricing, captive-product pricing, two-part pricing, by-product pricing, and product-bundling pricing (Kotler & Keller, 2012). An optional-pricing method implies offering optional features, products and services in addition to the main product, with some

Marketing Plan: Phase III - Drive Alert, by eMagin, Inc

1638 words - 7 pages , differentiation strategies, and appropriate pricing strategies using existing technology. Product external and internal factors will influence eMagin's expected target market. Pricing strategies will examine variable costs including channel members participation, and organizational profitability.Attributes of Drive AlertProduct attributes are extremely important to the identity of a product and will ultimately become the characteristics that define the

Similar Essays

Microsoft Product Pricing Essay

510 words - 2 pages Microsoft has a very interesting perspective on product pricing. It is clear that Microsoft looks at the market and prices its products competitively. But there have been occasions when Microsoft is introducing an innovative product. How does it decide then?In these instances Microsoft takes the low-price strategy. Microsoft worries about competitors even when it has a very large market share. If there are important differences in the prices of

Product Pricing Component: Dell, Inc Essay

542 words - 2 pages reduces the total cost of the computer. Add to the product's value by adding more value to the product. This tricky riddle is the secret of marketing complementary products. Due to the advantages of partnering with computer parts manufacturers, Dell offers competitive pricing on the latest technology driven by the market and consumer demand. Following the law of demand, the latest and greatest computer components are priced higher due to lack of

Product Life Cycle And New Product Pricing And Mix Product Pricing Strategy

1676 words - 7 pages Orange is very huge which aiming to establish branding and quality of product in this stage. It's unlikely to have profit at this stage, it's only a stage to testing the market.Companies may choose market skimming as the pricing strategy of the product in order to recover the huge development cost. Or they may choose market penetration in order to build up market share. At the very beginning stage of introduction of 3G mobiles, Orange wanted to

Distinguish The Pricing Of Service From Product

648 words - 3 pages service is becoming the main source of profit for many companies, it is playing a more essential role in marketers point of view. Thus, marketers around the world who has recognize the necessity to value service pricing has grown. However, service pricing is different from product pricing in many aspects. These articles have illustrated the difference between these two elements.First of all, the major difference is the nature of the two elements