Add Ons

PRICING STRATEGY NET PRICE BAND- Is the actual price paid by customers after
accounting for all forms of discount, including on- invoice and

ADD ONS - an option or accessory off- invoice discount.
ACCESSORIES- items of equipment that are not usually
essential, but which can be used with or added to something Typical on-invoice items typical off- invoice items
COMPLEMENTARY- a good or service used in conjunction with
another good or service. >Standard dealer/distributor >Cooperative advertising
GOLD-PLATED SOLUTION- Lots of features that no one wants, discounts >Slotting allowance
at a price that no one is willing to >Order size discount >Market-development funds
>Multiple SKU discount >Coupon redemption
Influences to Price Levels in Add-on Price Structures >Competitive discount
1. SIGNPOST EFFECT - argues for a low price on popular or >Exceptional discounts
frequently purchased products to induce purchase of less
popular or infrequently purchased items that are priced to
yield a higher relative contribution margin.
Effective strategic signpost pricing_ NET PRICE BY MARKET VARIABLES- enables senior executives
> Competing stores are heterogeneous in their format, to identify quickly whether there is slack in sales
some having a higher cost structure and others having a lower management and potential
cost structure.
> Customers are heterogeneous in their store preference PRICE WATERFALL- is a powerful tool for
> Customers select which retailer to purchase from based identifying hidden costs, and shows how much revenue
upon the expected utility that they will derive from patronizing companies really keep from each of their transactions.
a specific store.
> Retailers signal their overall price image through Discount Decision Management - managing specific discount
advertised pric decisions, organization have come to rely on two
key approaches to ensure that decisions are made with the
2. OPTIONAL EQUIPMENT EFFECT- argues for a low price of best interests of the firm at heart.
the base-level product produced by a manufacturer and a
relatively higher price for additional equipment at a higher DECISION RIGHTS - first line of defense against abusive
relative contribution margin. discounting, organization will limit
decision making
3. NETWORK EXTERNALITIES - can lead to aggressive pricing
behavior wherein the base product is offered at a low price, if DECISION INCENTIVES- A supplementary means of improving
not free, Decision making within the organization is though
improving the alignment of the incentives facing
4. LOCK-IN effect - that increase switching costs of base decision makers and the goal of the organization.
products can encourage firms to price the base product high
PRICE BUNDLING
DIFFERENT PRICING SCHEMES FOR ADD ONA Price bundling is combining several products or serv.
1. UNIT- If a customer purchased 5 addons with a unit pricing
scheme that costs 7 pesos per addons, the total price for the MARGINAL COST- REPRESENTS THE INCREMENTAL COST
addon would be 35 pesos (7x5). PER UNIT YUNG ADDING INCURRED WHEN
PRICE PRODUCING ADDITIONAL UNITS OF A GOOD OR SERVICE.
2. VOLUME- Pricing Bracket If the quantity of addons
purchased is between 1-5, each addons costs 7 pesos.if the TYPES OF BRAND SWITCHING
quantity of addons purchased is between 6-10, each addons 1. PERCEPTION
costs 4 pesos.THE MORE U PURCHASED ADD ONS, THE MRE 2. REPUTATION
DICOUNTS U WIL GET 3. COMPETITION
3. TIER - If the quantity of addons purchased is between 1-5, 4. PRICING
each addons costs 7 pesos. if the quantity of addons purchased 5. AVAILABILITY
is between 6-10, each addons costs 4 pesos. MAY CERTAIN 6. CUSTOMER EXPERIENCE
QUANTITY KUNG KAILAN MAGKAKA DISCOUNT 7. CHANGE
4. PACKAGE - The cost of 7 addons can be fixed at 30 pesos. 8. CURIOUSITY
MAY FIXED QUANTITY KUNG KAILAN MAY DICOUNT 9. NEEDS
Economic Model of Add-on Pricing QUALITIES OF A GOOD BUNDLE

0> value the product little and are not willing to pay much for
the additional benefits 1. HE PACKAGE IS WORTH MORE THAN THE SUM OF ITS PARTS
1> value the product highly and have some willingness to pay 2. THE BUNDLE BRINGS ORDER AND SIMPLICITY TO SET OF
for an add-on product CONFUSING OR TEDIOUS CHOICES
3. THE BUNDLE SOLVES A PROBLEM FOR THE CONSUMER
DISCOUNTS 4. THE BUNDLE IS FOCUSED AND LEARN IN AN EFFORT TO
DISPARITY ABOUNDS- he incentives and knowledge between AVOID CARRYING OPTIONS THE CONSUMER HAS NO USE FOR
field and Centralized executives leads to a natural conflict IT
5. THE BUNDLE GENERATES INTEREST OR EVEN CONTROVERSY
EXECUTIVE REACT - To halt the potential downward spiral in
prices through discounting, some executives take a knee-jerk
response and halt all discounts.

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PRICING STRATEGY NET PRICE BAND- Is the actual price paid by customers after

accounting for all forms of discount, including on- invoice and

Economic Model of Add-on Pricing QUALITIES OF A GOOD BUNDLE

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