Chapter 11 Pricing Strategies Questions for Discussion 1. Which of the different product mix pricing strategies discussed in the text applies best to Payless’s new strategy? : The strategy for setting a product’s price changes when the product is the part of a product mix. Firms are look for a prices that maximizes the profits on the total product mix. There are five product mix pricing strategies for the firms. Product line pricing, optional-product pricing, captive-product pricing, by-product pricing and product bundle pricing. In this case, Payless used product line pricing strategy.
A product line pricing strategy is a strategy in which the management sets the price steps between various products in a product line based on cost differences between the products, customer evaluation of different features and competitors prices. Payless used to have only limited lines of shoes and began to lose their customers. However, the company hired to CEO, Matt Rubel and he started to redesign the Payless. He changed the image of Payless, dusty dungeon of cheap footwear into the fun, and fashionable footwear. Therefore, Payless succeed to attract some new customers. 2.
How do concept such as psychological pricing and reference pricing apply to the Payless strategy? In what ways does Payless’s strategy deviate from these concepts? : A pricing approach that considers the psychology of prices and not simply the economics; the price is used to say something about the product. For example, $19. 99 or $9. 99 sort of “odd prices” that can round of by one last digit number. With the new line and new strategy, Payless increase the price of their products. However, if the suddenly change their price by increasing a lot, customers would not feel comfortable and they wouldn’t like it at all.
So, they can use this kind of strategy of Psychological pricing so still increasing of prices but make their customers comfortable. 3. Discuss the benefits and risks of the new Payless strategy for both Payless and the designers. Which of these two strands to lost the most? : Payless redesign their logo and launched a new store format, ‘Fashion Lab’ and ‘Hot Zone’. So they changed their image as more fashionable and trendy from cheap dusty dungeon footwear. Payless now are making the store more open, light, and airy. This strategy attracted new customers and it has been successful.
However, because of these advertisement in magazines and new retails launchings, increasing of the prices of products get necessary. So, they have some risks to lose their old customer who enjoyed their cheap/affordable footwear. Another risk for the designer is that they will be loses their job or has bad reputations if Payless fail in the market with their new strategy. Since, designers work in Payless for fulltime job. 4. Consider the scale on which Payless operates. How much of a price increase does Payless need to achieve in order to make this venture worthwhile? In this case, Payless should consider the company expenses, competitor and cost inflation. Opening of new stores and advertisements cost money. Therefore, Payless need to increase the price to cover the increasing expenses. Payless also have to consider their competitor products. If they increase to much compare to their competitors, they might lose some customers so always have to keep on eyes on competitors products. Also, Payless can use consumer’s reference prices to set the price. They increase product’s quality and design so customers should to find out the differences of products changes.