a. Definition of Prestige pricing strategy (not mentioned in the textbook) Prestige Pricing. In prestige pricing, prices are set at an artificially high level to provide a prestige or quality image. Prestige pricing is used especially when buyers associate a higher price with higher quality. Typical product categories in which selected products are prestige priced include perfumes, cars, alcoholic beverages, jewellery and electrical appliances. If producers that use prestige pricing lowered their prices dramatically, it would be inconsistent with the perceived images of such products. (source: http://smartamarketing.wordpress.com/2012/04/05/pricing-strategies-and-policies/ ) b. Compare with the Market-skimming pricing strategy:
* Market skimming strategy:
Setting a high price for a new product to skim maximum revenues layer by layer from the segments willing to pay the high price; the company makes fewer but more profitable sales. * Similarities between market skimming pricing and prestige pricing: Market skimming and prestige pricing all involve setting a premium price for a product; hoping consumers will associate high quality with high price. Generally, both strategies are most effective when product demand is inelastic. * Differences market skimming pricing and prestige pricing:
+ Market skimming pricing strategy:
Frequently, a skimming price approach is used when there are no competitively positioned products, and therefore, prices, to use as a...