* Your assessment is very important for improving the workof artificial intelligence, which forms the content of this project
Download Ch. 9
Survey
Document related concepts
Global marketing wikipedia , lookup
Grey market wikipedia , lookup
Marketing strategy wikipedia , lookup
Yield management wikipedia , lookup
Market penetration wikipedia , lookup
Product planning wikipedia , lookup
Revenue management wikipedia , lookup
Gasoline and diesel usage and pricing wikipedia , lookup
Congestion pricing wikipedia , lookup
Dumping (pricing policy) wikipedia , lookup
Marketing channel wikipedia , lookup
Perfect competition wikipedia , lookup
Transfer pricing wikipedia , lookup
Price discrimination wikipedia , lookup
Pricing science wikipedia , lookup
Transcript
9 Pricing Considerations and Strategies ROAD MAP: Previewing the Concepts • Identify and explain the external and internal • • • • • factors affecting a firm's pricing decisions. Contrast the three general approaches to setting prices. Describe the major strategies for pricing imitative and new products. Explain how companies find a set of prices that maximizes the profits from the total product mix. Discuss how companies adjust their prices to take into account different types of customers and situations. Discuss the key issues related to initiating and responding to price changes. 9-2 What is a Price? • Narrowly, price is the amount of money charged for a product or service. • Broadly, price is the sum of all the values that consumers exchange for the benefits of having or using the product or service. • Dynamic Pricing: charging different prices depending on individual customers and situations. 9-3 Dynamic Pricing The Internet is ushering in a new era of fluid pricing. PriceSCAN.com is an independent site that provides product comparisons and guides, and searches all merchant sites for the best prices. 9-4 Factors Affecting Pricing Decisions 9-5 Internal Factors Affecting Pricing Decisions • Marketing Objectives: – Company must decide on its strategy for the product. – General Objectives: • Survival, current profit maximization, market share leadership, and product quality leadership. 9-6 Product Quality Leadership Four Seasons starts with very highquality service—”we await you with the perfect sanctuary.” It then charges a price to match. 9-7 Internal Factors Affecting Pricing Decisions • Marketing Mix Strategy: – Price decisions must be coordinated with product design, distribution, and promotion decisions to form a consistent and effective marketing program. – Target costing: • Pricing that starts with an ideal selling price, then targets costs that will ensure that the price is met. 9-8 Internal Factors Affecting Pricing Decisions • Costs: – Fixed Costs: • Costs that do not vary with production or sales level. – Variable Costs: • Costs that vary directly with the level of production. 9-9 Internal Factors Affecting Pricing Decisions • Organizational Considerations: – Must decide who within the organization should set prices. – This will vary depending on the size and type of company. 9-10 External Factors Affecting Pricing Decisions • The Market and Demand: – Costs set the lower limit of prices. – The market and demand set the upper limit. 9-11 Pricing in Different Types of Markets Pure Competition: Many buyers and sellers where each has little effect on the going market price Monopolistic Competition: Many buyers and sellers who trade over a range of prices Oligopolistic Competition: Few sellers who are sensitive to each other’s pricing/marketing strategies Pure Monopoly: Market consists of a single seller 9-12 Demand Curve A curve that shows the number of units the market will buy in a given time period, at different prices that might be charged. 9-13 Upward Sloping Demand Curve Gibson was surprised to learn that its high-quality instruments did not sell as well at lower prices. 9-14 Major Considerations in Setting Price 9-15 Cost-Plus Pricing • Adding a standard markup to the cost of the product. • Popular because: – Sellers more certain about cost than demand – Simplifies pricing – When all sellers use, prices are similar and competition is minimized – Some feel it is more fair to both buyers and sellers 9-16 Break-Even Chart 9-17 Value-Based Pricing • Uses buyers’ perceptions of value, not the seller’s cost, as the key to pricing. 9-18 Perceived Value A less expensive piano might play well, but would it take you places your have never been before? 9-19 Competition-Based Pricing • Going-Rate Pricing: – Firm bases its price largely on competitors’ prices, with less attention paid to its own costs or to demand. • Sealed-Bid Pricing: – Firm bases its price on how it thinks competitors will price rather than on its own costs or on demand. 9-20 New-Product Pricing Strategies Market-Skimming Set a high price for a new product to “skim” revenues layer by layer from the market. Company makes fewer, but more profitable sales. • When to use: – Product’s quality and image must support its higher price. – Costs of smaller volume cannot be so high they cancel the advantage of charging more. – Competitors should not be able to enter market easily and undercut the high price. 9-21 New-Product Pricing Strategies Market Penetration Set a low initial price in order to “penetrate” the market quickly and deeply. Can attract a large number of buyers quickly and win a large market share. • When to use: – Market must be highly price sensitive so a low price produces more market growth. – Production and distribution costs must fall as sales volume increases. – Must keep out competition and maintain low price or effects are only temporary. 9-22 Discussion Question • What type of pricing strategy is used when new drugs are released by pharmaceutical companies? • Why? 9-23 Product Line Pricing • Involves setting price steps between various products in a product line based on: – Cost differences between products – Customer evaluations of different features – Competitors’ prices 9-24 Optional- and Captive-Product Pricing • Optional-Product – Pricing optional or accessory products sold with the main product (e.g., ice maker with the refrigerator). • Captive-Product – Pricing products that must be used with the main product (e.g., replacement cartridges for Gillette razors). 9-25 Pricing Strategies By-Product Pricing: Setting a price for by-products in order to make the main product’s price more competitive (e.g., sawdust and Zoo Doo) Product Bundle Pricing: Combining several products and offering the bundle at a reduced price (e.g., computer with software and Internet access). 9-26 Product Bundle Pricing CityPASS bundles tickets to many attractions at a low combined price. 9-27 Discounts and Allowances Discounts Allowances Cash Trade-In Quantity Promotional Functional Seasonal 9-28 Segmented Pricing • Selling a product or service at two or more prices, where the difference in prices is not based on differences in costs. • Types: 1. 2. 3. 4. Customer-segment Product-form Location pricing Time pricing 9-29 Psychological Pricing • Considers the psychology of • • prices and not simply the economics. Consumers usually perceive higher-priced products as having higher quality. Consumers use price less when they can judge quality of a product. 9-30 Promotional Pricing Temporarily pricing products below list price and sometimes even below cost to create buying excitement and urgency. Approaches: Loss Leaders Low-Interest Financing Special-Event Pricing Longer Warranties Cash Rebates Free Maintenance Discounts 9-31 Promotional Pricing Companies offer promotional prices to create buying excitement and urgency. 9-32 Geographical Pricing • FOB-origin pricing • Uniform-delivered • • • pricing Zone pricing Basing-point pricing Freight-absorption pricing 9-33 International Pricing • Price depends on many factors, including: – – – – Economic conditions Competitive situations Laws and regulations Development of the wholesaling and retailing system – Costs 9-34 International Pricing Companies must decide what prices to charge in different countries. 9-35 Initiating Price Changes Price Cuts Price Increases Excess Capacity Cost Inflation Falling Market Share Overdemand: Cannot Supply All Customers’ Needs Dominate Market Through Lower Costs 9-36 Interactive Student Assignment • Choose a partner and consider the following. – What would you think if Mercedes suddenly lowered its prices on its cars? – What would you think if Mercedes suddenly raised its prices on its cars? – Why? 9-37 Buyers’ Reactions to Price Changes What would you think if the price of Joy was suddenly cut in half? 9-38 Assessing and Responding to Competitor Price Changes 9-39 Public Policy and Pricing 9-40 Rest Stop: Reviewing the Concepts 1. Identify and define the external and internal factors 2. 3. 4. 5. 6. affecting a firm's pricing decisions. Contrast the three general approaches to setting prices. Describe the major strategies for pricing imitative and new products. Explain how companies find a set of prices that maximizes the profits from the total product mix. Discuss how companies adjust their prices to take into account different types of customers and situations. Discuss the key issues related to initiating and responding to price changes. 9-41 Q: Which of the following statements best represents your opinion about the pricing issue between brand name versus generic AIDS drugs? 1. Like all firms, big drug companies have the right to charge for their products whatever the market will bear and to enjoy the full benefit of patents in which they invested great amounts of time and resources. 2. To help South Africa with its public health crisis, the drug companies should have either offered their products to South African AIDS patients at discounts or taken no action when South Africa sought affordable alternatives AK, 7e – Chapter 9 9-42 Q: You introduce a moderately priced motorcycle and position it in terms of value, hoping that you will gradually come to dominate the market. Through your pricing strategy to expand your share of the market, you are pursuing: 1. market-share leadership. 2. survival. 3. product-quality leadership. 4. profit maximization. AK, 7e – Chapter 9 9-43 Q: If you knew that soft drink vending machines adjusted prices according to the temperature, would you still purchase drinks from them? 1. Yes 2. No AK, 7e – Chapter 9 9-44 Q: Because your competitor’s motorcycles perform equal to yours, you need to differentiate your products through pricing and marketing strategies, which will be mirrored by your competition . Thus, your firm works under conditions of: 1 .monopolistic competition. 2. oligopolistic competition. 3. pure monopoly. 4. pure competition. AK, 7e – Chapter 9 9-45 Q: Initially, you price you new motorcycle at $30,000, but you must drop the price to $28,000 to meet your broad objective. Consequently, demand for the new motorcycle jumps by 40 percent, because the demand for this product is highly: 1. inelastic 2. unpredictable 3. elastic 4. variable AK, 7e – Chapter 9 9-46 Q: To capture a market share as quickly and inexpensively as possible with your new cosmetics company, you determine the lowest prices you can set and still turn a quick profit. Once you have done so, you begin developing products that match those prices, setting your price according to: 1. break-even pricing. 2. competitive targeting. 3. target costing. 4. oligopolisitc pricing. AK, 7e – Chapter 9 9-47 Q: If the aforementioned approach doesn’t work, you find yourself struggling to survive. To stabilize your position, you tally up the cost of producing your cosmetics and then set a price that will just enable you to recover those costs, employing 1. break-even pricing. 2. value-based pricing. 3. cost-plus pricing. 4. target-profit pricing. AK, 7e – Chapter 9 9-48 Q: A chain of budget drugstores will allow you to offer cosmetics at slightly higher prices, as long as you also offer frequent discounts and sales. The chain will require you to use: 1. everyday low pricing. 2. competition-based pricing. 3. sealed-bid pricing. 4. high-low pricing. AK, 7e – Chapter 9 9-49 Q: Through _________ pricing, a business formulates prices according to consumers’ perceptions of what they get for the price they pay. 1. target-profit 2. break-even 3. value-based 4. cost-based AK, 7e – Chapter 9 9-50 Q: A retailer decides to mark up DVDs at 25 percent on the sales price. If she buys DVDs from a wholesaler for $15, what should be her selling price for DVDs? 1. $18.75. 2. $17.50. 3. $20.00. 4. $22.50. AK, 7e – Chapter 9 9-51 Q: Market penetration pricing works best when all the following conditions are met except: 1. consumers are price sensitive. 2. production and distribution costs fall as sales volume rises. 3. the low prices keep competitors at bay. 4. the product has a premium image. AK, 7e – Chapter 9 9-52 Q: Setting a low initial price for a new product is called: 1. market penetration. 2. market skimming. 3. product line pricing. 4. functional discounting. AK, 7e – Chapter 9 9-53 Q: When a business separately prices the accessory products sold with the main product, it is employing: 1. a functional discount. 2. captive-product pricing. 3. optional-product pricing. 4. market-penetration pricing. AK, 7e – Chapter 9 9-54 Q: Through_________, a business combines several products and offers that set at a reduced price. 1. price increases 2. international pricing 3. psychological pricing 4. product bundle pricing AK, 7e – Chapter 9 9-55 Q: When the Zoo Doo company started selling a zoo’s animal manure as fertilizer, it was practicing: 1. optional-product pricing. 2. product line pricing. 3. captive-product pricing. 4. by-product pricing. AK, 7e – Chapter 9 9-56 Q: When a business separately prices the accessory products sold with the main product, it is employing: 1. a functional discount. 2. captive-product pricing. 3. optional-product pricing. 4. market-penetration pricing. AK, 7e – Chapter 9 9-57 Q: Many retailers never sell products at high manufacturer’s suggested retail prices (MSRPs), and list high MSRPs only to attract customers with promises of big savings. Is this practice deceptive pricing? 1. Yes. If the retailers haven’t sold anything at a given MSRP, why use it as a comparative standard? 2. No. The MSRP is there as a rough reference point, and it is up to the consumers to know that nobody buys or sells at that price. AK, 7e – Chapter 9 9-58 Q: By using _________, a business can reduce prices temporarily to increase short-term sales. 1. market-skimming pricing 2. promotional pricing 3. by-product pricing 4. seasonal discounts AK, 7e – Chapter 9 9-59 Q: Zone pricing, uniformdelivered pricing, and basingpoint pricing are types of: 1. scanner fraud. 2. captive-product pricing. 3. geographical pricing. 4. new-product pricing. AK, 7e – Chapter 9 9-60 Q: A "2/10, net 30" discount means: 1. the buyer gets a 0.2 (i.e., 20 percent) discount if the payment is made in 30 days. 2. the buyer has to pay the net amount between the second and the tenth day from purchase. 3. the payment is due in 30 days, however, if the buyer pays within the first 10 days, it gets a two percent discount. 4. the discount can vary from two to 10 percent, depending on when it is paid within the 30-day payment period. AK, 7e – Chapter 9 9-61 Q: Discounts offered to channel members for services they provide are called: 1. functional discounts. 2. quantity discounts. 3. cash discounts. 4. seasonal discounts. AK, 7e – Chapter 9 9-62 Q: When confronted with cost inflation, a business may need to: 1. remix its products. 2. raise its prices. 3. fix prices with competitors. 4. all the above. AK, 7e – Chapter 9 9-63 Q: A company can react to a competitor’s price change in all the following ways except: 1. price fixing. 2. reducing its own prices. 3. raising the perceived quality of its products. 4. launching a fighting brand. AK, 7e – Chapter 9 9-64 Q: All the following are common motives for price cuts except: 1. excess capacity. 2. overdemand. 3. strong price competition. 4. market domination. AK, 7e – Chapter 9 9-65 Q: Assume a company’s profit margin is 4 percent of sales. Assuming sales volume remains unchanged, increasing the price by 1 percent will lead to a profit increase of: 1. 1 percent. 2. 5 percent. 3. 20 percent. 4. 25 percent. AK, 7e – Chapter 9 9-66 Q: Through _________, a business sells its products below cost in order to punish competitors or put them out of business. 1. predatory pricing 2. promotional pricing 3. cash discounts 4. allowances AK, 7e – Chapter 9 9-67 Q: When a retailer states prices or price savings that mislead consumers or are not actually available to consumers, the retailer is said to be practicing: 1. predatory pricing. 2. scam pricing. 3. deceptive pricing. 4. discriminatory pricing. AK, 7e – Chapter 9 9-68