Answers – Payless ShoeSource case study
1. Which of the different product mix pricing strategies applies best to Payless’s new strategy?
To my view they are using mix of different strategies. Firstly, skimming pricing. This is about selling a product at a high price, sacrificing high sales to gain a high profit, therefore ‘skimming’ the market. I see that they have invested a lot of money to hire top notch designers, rebranding effort like remodeling stores etc. There needs to be some mechanism (read, strategy) to recover this cost. For some items they have even employed premium pricing. Interestingly, Payless came up with some really good product like Lela Rose, Abaete etc. On the other hand, they have products which are low as $12.
As best strategy that they are employing; I would say that they are going for Product Line Pricing. They want their customers to get attracted by the big brands in their portfolio. In that way, other products will gain due importance too. So to customers, overall portfolio will look very attractive.
2. How do concepts such as psychological pricing and reference pricing apply to the Payless strategy? In what ways does Payless’s strategy deviate from these concepts?
By definition, psychological pricing on the theory that certain prices has a psychological impact. The retail prices are often expressed as "odd prices": a little less than a round number, e.g. $19.99 or £2.98. There is no explicit reference given in the case where we see that they are using this strategy. As a matter of fact, we see that though Payless is increasing the price of their products. So, sudden upward movement of price may come as a shock to customers. This strategy of Psychological pricing can be employed in this scenario. Payless actually did not pay a heed to that and did not come up with any proper plan towards psychological pricing.
As for Reference pricing, it is a strategy in which a product is sold at a price just below its main...
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