Download Pricing

Some Facets of Pricing

Why your tank of gas leaves you less
upset these days

Is your cup of coffee a ‘rip off’?

Can’t we find the best bargains at
auctions?

Why does my bag of chips have more
air in it?
What We Will Discuss Today

Factors Affecting Prices
 Company
factors
 Consumer factors
 Competitive factors

Pricing Approaches
 Cost-based
 Consumer-based
 Competitor
based
?
Internal (Company) Factors 1

Goals
 Survival
 Current
Profit Maximization
 Market-Share Leadership
 Product-Quality Leadership

Marketing Mix Strategy
pricing decisions must be
coordinated with other
marketing mix variables
Internal Factors 2

Costs
 Variable Costs
 economies of scale
 experience curve
 Fixed
Costs
External (Demand) Factors

Market Structure
 Pure
competition: Price = Marginal costs
 Monopolistic competition: Price = Range
 Oligopolistic competition: Price based on
competitors’ prices
 Pure monopoly: Price = ??
– Economics view
– Reality

Consumer Perceptions of Value
What is an unFair Price?
Consumer Perceptions of
Price and Value

Reference Price

Assymetry of Losses and Gains

‘Fair’ and ‘Unfair’ Prices
Pricing Perception Issues

Odd versus even prices

Is $1.99 cheaper than $2.00?

Why is tax not included in the price?
Pricing Approaches

Cost-Based Pricing
 Cost-plus
pricing
 Break even analysis
 Target profit pricing

Buyer-Based Pricing
 Perceived

value
Competition-Based Pricing
Competition

Bidding
 Sealed
bidding: chance of obtaining
contract versus price
 Open bidding: auctions

Competitive Reactions
 hostile
 cooperative
 nature
of the market?
Price/Quality Strategies
Price
Superb
Value
Strategy
Premium
Strategy
High-value
Strategy
Overcharging
Strategy
Medium-value
Strategy
Good Value
Strategy
Rip-off
Strategy
False Economy
Strategy
Economy
Strategy
Quality
A Geography Question

Should we charge the same price to a
customer in New York City as we do to
a customer in Long Beach?
Geographic Pricing 1

FOB (free-on-board)Origin Pricing
 goods
are placed free on board carrier
upon which title passes to customer
Geographic Pricing 2

Uniform Delivered Pricing
 same

price plus freight anywhere in U.S.
Zone Pricing
Discounts

Why discount?

How do we discount?
Timing of Discounts
Timing of Discounts

seasonal discounts

PLC discounting

random discounting
Types of Discounts 1

price discrimination
 customer
segment
 product form: the expensive sheep bladder
vitamin
 image

pricing
Loss Leader Discounts
Types of Discounts 2

Psychological discounts: “was $359,
now $299.”

Coupons

Cash Rebates
A Typology of Customers and
Strategies
Price Sensitivity
High
Time
Sensitivity
Low
High
EDLP
Low
Coupons
Focus on
Convenience
Focus on
List Prices,
Quality
How to Increase Prices?

The “List Price”

How much to increase prices?
 gradually:
 all

JNDs
at once
Decrease product size or quantity: the
shrinking candy bar
What We Discussed Today

Factors Affecting Prices
 Company
factors
 Consumer factors
 Competitive factors

Pricing Approaches
 Cost-based
 Consumer-based
 Competitor
based