Download STEP 4 - McGraw Hill Higher Education - McGraw

Copyright © 2015 McGraw-Hill Education. All rights reserved. No reproduction or distribution without the prior written consent of McGraw-Hill Education.
LEARNING OBJECTIVES (LO)
AFTER READING CHAPTER 14, YOU SHOULD BE ABLE TO:
LO 14-1
LO 14-2
Describe how to establish the
“approximate price level” using
demand-oriented, cost-oriented,
profit-oriented, and competitionoriented approaches.
Recognize the major factors
considered in deriving a final list or
quoted price from the approximate
price level.
14-2
LEARNING OBJECTIVES (LO)
AFTER READING CHAPTER 14, YOU SHOULD BE ABLE TO:
LO 14-3
LO 14-4
Identify the adjustments made to the
approximate price level on the basis of
discounts, allowances, and geography.
Name the principal laws and
regulations affecting specific pricing
practices.
14-3
VIZIO, INC.—WHERE VISION MEETS
VALUE™ IN HDTV
14-4
FIGURE 14-1 The six steps in setting price.
The first three steps were covered in Chapter
13 and the last three steps in Chapter 14.
14-5
FIGURE 14-2 Four approaches for selecting an
approximate price level
14-6
LO 14-1
STEP 4: SELECT AN APPROPRIATE
PRICE LEVEL
DEMAND-ORIENTED PRICING APPROACHES

Skimming
Pricing

Penetration
Pricing

Prestige
Pricing

Price
Lining
Rolex Ad
14-7
LO 14-1
MARKETING MATTERS
Energizer’s Lesson in Price Perception—Value
14-8
FIGURE 14-3 For prestige pricing, the demand
curve for high-quality products is backwards
sloping
14-9
FIGURE 14-4 For price lining, the demand
curve is elastic at each price point but inelastic
between price points
14-10
LO 14-1
STEP 4: SELECT AN APPROPRIATE
PRICE LEVEL
DEMAND-ORIENTED PRICING APPROACHES


Odd-Even
Pricing
Bundle
Pricing

Target
Pricing

Yield
Mgmt
Pricing
14-11
LO 14-1
STEP 4: SELECT AN APPROPRIATE
PRICE LEVEL
COST-ORIENTED PRICING APPROACHES

Standard Markup Pricing
• Cost

Cost-Plus Pricing
• Cost-Plus
Percentageof-Cost
Pricing

• Selling Price
• Cost-Plus
Fixed-Fee
Pricing
Experience Curve Pricing
14-12
FIGURE 14-A Markups for a manufacturer,
wholesaler, and retailer on a home appliance
sold to consumers for $100
14-13
LO 14-1
STEP 4: SELECT AN APPROPRIATE
PRICE LEVEL
PROFIT-ORIENTED PRICING APPROACHES

Target Profit
Pricing

Target Returnon-Sales Pricing

Target Return-onInvestment Pricing
14-14
FIGURE 14-5 Results of a spreadsheet
simulation to select a price that will achieve a
target return on investment
14-15
LO 14-1
STEP 4: SELECT AN APPROPRIATE
PRICE LEVEL
COMPETITION-ORIENTED PRICING APPROACHES

Customary Pricing

Above-, At-, or Below-Market Pricing

Loss-Leader Pricing
14-16
LO 14-1
USING MARKETING DASHBOARDS
Are Red Bull Prices Above, At, or Below the Market?
Price Premium (%)
Price Premium (%) =
Dollar Sales ($) Market Share for a Brand
–1
Unit Volume (#) Market Share for a Brand
14-17
LO 14-2
STEP 5: SET THE LIST OR QUOTED PRICE
CHOOSE A PRICE POLICY

Fixed-Price Policy

Dynamic Pricing Policy
• Clickstream
14-18
MAKING RESPONSIBLE DECISIONS
LO 14-2
Dynamic Pricing—Is There Discrimination
in Bargaining for a New Car?
14-19
LO 14-2
STEP 5: SET THE LIST OR QUOTED PRICE
CONSIDER THESE EFFECTS ON PRICING

Company Effects
• Product-Line Pricing

Customer Effects

Competitive Effects
• Price War
• When to Consider Price Cutting
14-20
LO 14-2
STEP 5: SET THE LIST OR QUOTED PRICE
BALANCE INCREMENTAL COSTS AND REVENUES

Marginal Analysis
• How Many Extra Units to Sell
for a $1,000 Advertisement?
• Should 3 More Salespeople be Hired?
14-21
FIGURE 14-6 Expected incremental revenue
from pricing and other marketing actions must
more than offset incremental costs to achieve
incremental profit
14-22
FIGURE 14-7 Three special adjustments to list
or quoted price include discounts, allowances,
and geographical adjustments
14-23
LO 14-3
STEP 6: MAKE SPECIAL ADJUSTMENTS
TO THE LIST OR QUOTED PRICE
DISCOUNTS

Quantity Discounts
• Noncumulative Quantity Discounts
• Cumulative Quantity Discounts

Seasonal Discounts
14-24
LO 14-3
STEP 6: MAKE SPECIAL ADJUSTMENTS
TO THE LIST OR QUOTED PRICE
DISCOUNTS

Trade (Functional) Discounts

Cash Discounts
14-25
FIGURE 14-8 The structure of trade discounts
affects the manufacturer’s selling price and
the margins made by resellers in the marketing
channel
14-26
LO 14-3
STEP 6: MAKE SPECIAL ADJUSTMENTS
TO THE LIST OR QUOTED PRICE
ALLOWANCES

Trade-In Allowances

Promotional Allowances
• Everyday Low Pricing (EDLP)
14-27
MARKETING MATTERS
LO 14-3
Everyday Low Prices at the Supermarket =
Everyday Low Profits—Creating Customer Value at a Cost
14-28
LO 14-3
STEP 6: MAKE SPECIAL ADJUSTMENTS
TO THE LIST OR QUOTED PRICE
GEOGRAPHICAL ADJUSTMENTS

FOB Origin Pricing
14-29
LO 14-3
STEP 6: MAKE SPECIAL ADJUSTMENTS
TO THE LIST OR QUOTED PRICE
GEOGRAPHICAL ADJUSTMENTS

Uniform Delivered Pricing
• Single-Zone Pricing
U.S. Postal Service Priority Mail
Flat Rate Prices from Denver
to anywhere in the U.S.
 Envelope: $5.60
 Small Box: $5.80
 Medium Box: $12.35
 Large Box: $16.85
14-30
LO 14-3
STEP 6: MAKE SPECIAL ADJUSTMENTS
TO THE LIST OR QUOTED PRICE
GEOGRAPHICAL ADJUSTMENTS

Uniform Delivered Pricing
• Multiple-Zone Pricing
14-31
LO 14-3
STEP 6: MAKE SPECIAL ADJUSTMENTS
TO THE LIST OR QUOTED PRICE
GEOGRAPHICAL ADJUSTMENTS

Uniform Delivered Pricing
• FOB with Freight-Allowed Pricing
• Freight Absorption Pricing
14-32
LO 14-3
STEP 6: MAKE SPECIAL ADJUSTMENTS
TO THE LIST OR QUOTED PRICE
GEOGRAPHICAL ADJUSTMENTS

Uniform Delivered Pricing
• Basing-Point Pricing
14-33
FIGURE 14-9 Several pricing practices are
affected by legal and regulatory restrictions,
which benefit both consumers and firms
14-34
LO 14-4
STEP 6: MAKE SPECIAL ADJUSTMENTS
TO THE LIST OR QUOTED PRICE
LEGAL & REGULATORY ASPECTS OF PRICING

Price Fixing
• Horizontal Price Fixing
• Vertical Price Fixing
 Resale Price Maintenance
• Rule of Reason
14-35
LO 14-4
STEP 6: MAKE SPECIAL ADJUSTMENTS
TO THE LIST OR QUOTED PRICE
LEGAL & REGULATORY ASPECTS OF PRICING

Price Discrimination

Deceptive Pricing

Geographical Pricing

Predatory Pricing
14-36
FIGURE 14-10 Five most common deceptive
pricing practices
14-37
MARKETING INSITE
LO 14-4
So You Think You Know What “Free” Means?
Think Again
14-38
VIDEO CASE 14
CARMEX [B]: SETTING THE PRICE OF
THE NUMBER ONE LIP BALM
14-39