Pricing Strategy; Payless

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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...
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