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Chapter 18 Setting the Right Price Steps in Setting the Right Price Establish pricing goals Estimate demand, costs, and profits Choose a price strategy Fine tune with pricing tactics Results lead to the right price Price Skimming Inelastic Demand Situations when Price Skimming is Successful Superior Product Legal Protection of Product Technological Breakthrough Limited Production Penetration Pricing Advantages Discourages or blocks competition from market entry Disadvantages Requires gear up for mass production Selling large volumes at low prices Strategy to gain market share may fail Status Quo Pricing Advantages Simplicity Safest route to longterm survival for small firms Disadvantages Strategy may ignore demand or cost The Legality and Ethics of Price Strategy Unfair Trade Practices Price Fixing Issues That Limit Pricing Decisions Price Discrimination Predatory Pricing Tactics for Fine-Tuning the Base Price Discounts Fine-Tuning Pricing Tactics Geographic Pricing Special Pricing Tactics Tactics for Fine-Tuning the Base Price Quantity Discounts Cash Discounts Functional Discounts Seasonal Discounts Common Tactics for Fine-Tuning the Base Price Promotional Allowances Rebates Value-Based Pricing Special Pricing Tactics Single-Price Tactic All goods offered at the same price Flexible Pricing Professional Services Pricing Price Lining Different customers pay different price Leader Pricing Sell product at near or below cost Bait Pricing Price Bundling Lure customers through false or misleading price advertising Odd-number prices imply bargain Even-number prices imply quality Combining two or more products in a single package Two-Part Pricing Two separate charges to consume a single good Odd-Even Pricing Used by professionals with experience, training or certification Several line items at specific price points Relationships among Products Relationships Among Products Complementary Substitutes Neutral Cost-Oriented Tactics Problems with Cost-Oriented Tactics A high volume of sales on an item with a low profit margin may still make the item highly profitable Eliminating a product may reduce economies of scale Eliminating a product may affect the pricequality image of entire line Demand-Oriented Tactics Cultivate selected demand Strategies to Make Demand More Inelastic Create unique offerings Change the package design Heighten buyer dependence