Product Pricing Essay -- essays research papers

Product Pricing The cost of an â€Å"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 â€Å"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 â€Å"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 st ore Toys â€Å"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 â€Å"R† Us is now the second largest toy seller in the U.S. behind Wal-Mart. Toys â€Å"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 In... ...2004, October 12). Wal-Mart wants $10 cds. Rolling Stone. Retrieved on May 2, 2005 from http://www.rollingstone.com/news/story/_/id/6558540/thekillers?pageid=rs. Home&pageregion=single1&rnd=1097616001120&has-player=unknown D’Innocenzio, A. (2005, March 18). Toys R Us deal may reignite the industry. The San Diego Union Tribune. Retrieved on April 25, 2005 from http://www.signonsandiego. com/uniontrib/20050318/news_1b18toys.html Grant, L. (2004, October 11). Wal-Mart doesn’t plan to toy much with prices; last year’s cuts hurt other retailers and left giant thinking it slashed too much. Proquest Document. USA Today. Pg B8. Johnson, L. (1999). A review and a conceptual framework of prestige-seeking consumer behavior. Academy of Marketing Science Review. Retrieved on May 4, 2005 from http://www.findarticles.com/p/articles/mi_qa3896/is_199901/ai_n8843016 Loss leader. Retrieved on May 3, 2005 from http://www.absoluteastronomy.com/ encyclopedia/l/lo/loss_leader.htm Power Point Presentation (2005, May 1). Touro University International. Marketing 501 CD. Price skimming. (2005). Invetopedia.com. Retrieved on May4, 2005 from http://www.investopedia.com/terms/p/priceskimming.asp