Download Pricing Strategies

Pricing Strategies
• Calculating the selling price for the
product/service calls for the business
person to don two hats! That of marketer,
and that of accountant. Keep in mind that
the selling price should be what the
customer will be prepared to pay! The
accountant knows that the price must of
course cover all costs, and give a profit
(the reason business operate).
Price vs. Nonprice
A firms percentage of the total sales
Volume generated by all the
competitors in a market.
• Is a calculation that is used to determine the
relative profitability of a product. A company may
price its products to achieve a certain return on
investment. Formula is: Return-Investment
divided by Investment
• Assume your company sells trash cans for $8
each. Your cost to make and market the trash
cans is $6.50 per unit. Profit is money earned by a
business minus costs and expenses.
• $8 - $6.50 = $1.50 / $6.50 = .23 This means that
your rate of return on investment is 23 percent.
Factors affecting your pricing strategy
include:
• Supply and demand
• Your costs and expenses
• Competition
Cost Oriented
• Cost Oriented Pricing: price is determined by
adding a profit element on top of the cost of
making the product.
• Markup is the difference between the price of
an item and its cost. It is generally expressed
as a percentage. The markup in dollars is
added to the cost to determine the price:
Cost + markup = Price
$25 + $15 = $40.00
Example:
An oak desk, which sells for $251.95 is marked up $108.00.
What is the cost of the desk to the shop owner?
Practice Markup Pricing
• A computer software retailer used a markup
rate of 40%. Find the selling price of a
computer game that cost the retailer $25.
• A gold shop pays its wholesaler $40 for a
certain club, and then sells it to a golfer for
$75. What is the markup rate?
• Marketers who use demand-oriented pricing
attempt to determine what present customers
are willing to pay for given goods and services.
. How much value does the customer place on the product?
Price is determined by demand
1. Price above, price in line, or price under the
competition?
2. no relation to cost of the product or supply and
demand
3. prices based solely on competitors’ price
competitive bid pricing - Price based off the
competition
Ex: Competing gas stations
going-rate pricing - what every one else is
doing, usually set by the firm with
largest market share. Ex. Airlines
Skimming Pricing
• a pricing policy that sets a very high price for
a new product
• As the demand of the first customers is
satisfied, the firm lowers the price to attract
another, more price-sensitive segment.
Penetration Pricing
• Opposite of skimming
• setting a relatively low initial entry price,
usually lower than the intended established
price, to attract new customers. The strategy
aims to encourage customers to switch to the
new product because of the lower price.
Refers to techniques that create an illusion for customers or that
makes shopping easier for them.
Technique involves setting prices
that end in either odd or even
numbers
Practice of setting higherthan-average
Prices to suggest status to
the consumer.
Suggestive bargain
Packages. 3 for .99
Combining several
products and offering the
bundle at a reduced price
On sale pricing
Involves the seller’s offering reductions from the usual price.
Discounts are offered to buyers to encourage them to pay
their bills quicker!
Offered to buyers for placing large orders.
Offered to buyers to purchase products in advance.