Download 1133273874_334264

Introduction
to
Chapter 20: Setting the Right Price
Designed & Prepared by Laura Rush
B-books, Ltd.
Copyright Cengage Learning 2013
All Rights Reserved
1
Learning Outcomes
LO1
Describe the procedure for setting
the right price
LO2
Identify the legal and ethical constraints
on pricing decisions
LO3
Explain how discounts, geographic pricing,
and other pricing tactics can be used to finetune the base price
LO4
Discuss product line pricing
LO5
Describe the role of pricing during periods
of inflation and recession
Copyright Cengage Learning 2013
All Rights Reserved
2
Establish Pricing Goals
Profit-Oriented
Sales-Oriented
Status Quo
Copyright Cengage Learning 2013
All Rights Reserved
3
Choose a Price Strategy
Price skimming - A firm charges a high
introductory price, often coupled
with heavy promotion.
Penetration Pricing - A firm charges a
relatively low price for a product initially as a way
to reach the mass market.
Status Quo Pricing - Charging a price
identical to or very close to the competition’s price.
Copyright Cengage Learning 2013
All Rights Reserved
4
The Legality and Ethics of
Price Strategy
Unfair Trade Practices
Price Fixing
Price Discrimination
Predatory Pricing
Copyright Cengage Learning 2013
All Rights Reserved
5
Tactics for Fine-Tuning the Base
Price
Discounts
Geographic pricing
Special pricing tactics
Copyright Cengage Learning 2013
All Rights Reserved
6
Discounts, Allowances, Rebates, and
Value-Based Pricing
Quantity Discounts
Promotional Allowances
Cash Discounts
Rebates
Functional Discounts
Zero Percent Financing
Seasonal Discounts
Markdown Money
Value-Based Pricing
Copyright Cengage Learning 2013
All Rights Reserved
7
Pricing Products Too Low
1. Managers attempt to buy market share through
aggressive pricing.
2. Managers tend to make pricing decisions
based on current costs, current competitor
prices, and short-term share gains rather than
on long-term profitability.
Copyright Cengage Learning 2013
All Rights Reserved
8
Geographic Pricing
FOB origin pricing
Uniform delivered
pricing
Zone pricing
Freight absorption
pricing
Basing-point
pricing
Copyright Cengage Learning 2013
All Rights Reserved
Online
http://www.ups.com
9
Other Pricing Tactics
Single-Price Tactic
All goods offered at the same price
Flexible Pricing
Different customers pay different price
Professional
Services Pricing
Used by professionals with experience,
training or certification
Price Lining
Several line items at specific price points
Leader Pricing
Sell product at near or below cost
Bait Pricing
Odd-Even 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
Pay What You Want
Allowing customers to pay what they think a
product is worth
Consumer Penalties
Businesses Impose
Consumer Penalties If...
An irrevocable
loss of revenue
is suffered
Additional
transaction costs
are incurred
Online
http://www.princesscruises.com
http://www.carnival.com
Copyright Cengage Learning 2013
All Rights Reserved
11
Product Line Pricing
Setting prices for an entire line
of products.
Online
http://www.beauty.com
Copyright Cengage Learning 2013
All Rights Reserved
12
Relationships Among Products
Complementary
Substitutes
Neutral
Copyright Cengage Learning 2013
All Rights Reserved
13
Joint Costs
Costs that are shared in
the manufacturing
and marketing of several
products in a product life.
Copyright Cengage Learning 2013
All Rights Reserved
14
Inflation
Cost-Oriented Tactics
High Inflation
Demand-Oriented Tactics
Copyright Cengage Learning 2013
All Rights Reserved
15
Cost-Oriented Tactics
 Delayed-quotation
 Escalator
pricing
pricing
 Hold
prices constant, but add
new fees
Copyright Cengage Learning 2013
All Rights Reserved
16
Demand-Oriented Tactics
Cultivate selected demand
Strategies
to Make
Demand
More Inelastic
Create unique offerings
Change the package design
Heighten buyer dependence
Copyright Cengage Learning 2013
All Rights Reserved
17
Recession
Value-Based Pricing
Bundling or Unbundling
Copyright Cengage Learning 2013
All Rights Reserved
18
Supplier Strategies During
Recession
Renegotiating contracts
Offering help
Keeping the pressure on
Paring down suppliers
Copyright Cengage Learning 2013
All Rights Reserved
19