Identify an example of each of the following: odd-even pricing, prestige pricing, price bundling, and captive pricing.
The Correct Answer and Explanation is :
Odd-Even Pricing:
Example: A product priced at $9.99 instead of $10.00.
Explanation: Odd-even pricing is a psychological pricing strategy where the price is set just below a round number, such as $9.99 instead of $10.00. The idea is that consumers perceive prices ending in .99 or .95 as being significantly lower than the next whole number, even if the difference is only one cent. This pricing strategy exploits the cognitive bias of consumers who tend to round down and associate lower prices with better deals. It’s commonly seen in retail, especially in stores or online.
Prestige Pricing:
Example: A luxury brand like Rolex setting a watch price at $10,000.
Explanation: Prestige pricing is a strategy used by high-end or luxury brands to set prices significantly higher than competitors to suggest exclusivity and superior quality. The high price itself acts as a signal of the product’s value and luxury. Consumers may associate the high price with quality, status, and craftsmanship, which appeals to those desiring to display their wealth or social standing. This pricing strategy is often used for products like designer clothing, luxury cars, and expensive jewelry.
Price Bundling:
Example: A fast food chain offering a “value meal” where a burger, fries, and drink are sold together at a discounted price.
Explanation: Price bundling involves selling multiple products or services together at a lower price than if they were purchased individually. It encourages customers to buy more items, increasing overall sales volume while providing perceived savings. Bundling can be effective in encouraging customers to try new items or purchase additional goods. For instance, many fast food chains bundle a meal (burger, fries, and drink) for a lower price than purchasing each item separately, making it more attractive to budget-conscious consumers.
Captive Pricing:
Example: Selling a printer for $50, but charging $30 for replacement ink cartridges.
Explanation: Captive pricing occurs when a company offers a basic product at a low price (the “captive” product) but then makes the customer reliant on purchasing complementary goods (such as ink, razor blades, or printer cartridges) at higher prices. The strategy is designed to generate ongoing revenue from customers who have already purchased the initial product and need the complementary goods to continue using it. This approach is common in industries like printers, gaming consoles, and razors.