High-Low Pricing

Definition

High-low pricing is a pricing strategy where a retailer or manufacturer sets a high initial price for a product, then periodically offers discounts or sales to attract customers. This approach aims to balance the need for high profit margins with the desire to remain competitive and appealing to price-sensitive consumers.

5 Must Know Facts For Your Next Test

1. High-low pricing allows retailers to offer a perception of value by periodically discounting products, while still maintaining high profit margins on regular-priced items.
2. This strategy is often used for fashion, electronics, and other products with short product lifecycles, where early adopters are willing to pay premium prices.
3. High-low pricing can help retailers manage inventory and respond to competitive pressures, as they can quickly adjust prices based on demand and market conditions.
4. The frequent price changes and promotions associated with high-low pricing can create a sense of urgency and scarcity, encouraging consumers to make purchases before the sale ends.
5. Effective implementation of high-low pricing requires careful analysis of consumer behavior, competition, and the product's position in the market.

Review Questions

• Explain how high-low pricing relates to the pricing strategies and tactics for existing products (12.5)
  • High-low pricing is a key pricing strategy for existing products, as it allows manufacturers and retailers to balance the need for high profit margins with the desire to remain competitive and attractive to price-sensitive consumers. By offering periodic discounts and sales, high-low pricing creates the perception of value and encourages consumers to make purchases, while still maintaining regular high prices that contribute to overall profitability. This strategy is particularly useful for products with short lifecycles, where early adopters are willing to pay premium prices before the product is gradually discounted to appeal to a wider market.
• Describe how high-low pricing influences the role of retailers in the distribution channel (18.1)
  • In the context of the distribution channel, high-low pricing gives retailers significant control and flexibility in pricing decisions. Retailers can use high-low pricing to manage their inventory, respond to competitive pressures, and create a sense of urgency and scarcity among consumers. By periodically offering discounts and sales, retailers can attract price-sensitive customers while still maintaining high profit margins on regular-priced items. This pricing strategy also allows retailers to differentiate themselves from competitors and provide a unique value proposition to consumers, shaping their role and influence within the distribution channel.
• Evaluate how high-low pricing relates to the overall retailing strategy decisions (18.3)
  • High-low pricing is a crucial component of a retailer's overall strategy, as it directly impacts their pricing, promotional, and inventory management decisions. By implementing a high-low pricing approach, retailers can balance their need for profitability with the desire to remain competitive and appealing to a wide range of consumers. This strategy allows retailers to adjust prices quickly in response to market conditions, manage inventory effectively, and create a sense of urgency and scarcity that can drive sales. Ultimately, high-low pricing is a strategic tool that retailers can use to differentiate themselves, attract and retain customers, and achieve their overall business objectives within the competitive retail landscape.

Related terms

Penetration Pricing: A pricing strategy where a product is initially offered at a low price to rapidly gain market share, before gradually increasing prices over time.

Skimming Pricing: A pricing strategy where a product is initially offered at a high price to maximize profits from early adopters, before gradually lowering prices to appeal to a wider market.

Psychological Pricing: A pricing strategy that uses certain price points or price endings to influence consumer perceptions and purchasing behavior.