Download PRICING PRODUCTS

PRICING PRODUCTS
Price - the amount of money
charged for a product or service,
or the sum of the values that
consumers exchange for the
benefits of having or using the
product or service.
Factors to consider when setting
prices
1. Internal factors
a. marketing objectives(
survival, current profit
maximization,market share
leadership, product quality
leadership)
b. Marketing mix strategy
c. Target costing - pricing that
starts with an ideal selling price,
then targets costs that will
ensure that the price is met.
Types of costs
fixed costs- do not vary with
production or sales level
variable costs- vary directly with
the level of production
total costs-sum of the fixed and
variable costs.
Experience curve or learning
curve - the drop in the average
per unit production cost that
comes with accumulated
production experience.
C. Organizational considerations
2. External Factors Affecting
Pricing Decisions
2. External Factors
a. The market and demand
- pricing in different types of
market (pure competition,
monopolistic competition,
oligopolistic competition, pure
monopoly)
- law of demand and supply
Price elasticity - A measure of
the sensitivity of demand to
changes in price.
B. Competitors’ costs and prices
c. other external factors
- economic conditions
- the government
General Pricing Approaches
I. Cost-Based Pricing
1. Cost-plus pricing - adding a
standard markup to the cost of
the product
2.Break-even pricing(target
profit pricing) - setting price to
bvreakeven on the costs of
making and marketing a
product; or setting price to
make a target profit
breakeven volume = fixed
cost/(price-variable cost per
unit)
II. Value-Based pricing
- setting price based on buyers’
perceptions of value rather
than on the seller’s cost.
Value pricing - offering just the
right combination of quality
and good service at a fair price
III. Competition-Based Pricing
- setting prices based on the
prices that competition chage
for similar products.
New-Product Pricing Strategies
1. Market-skimming pricing
- Setting a high price for a new
product to skim maximum
revenues layer by layer from the
segments willing to pay the high
price; the company makes fewer
but more profitable sales.
2. Market penetration pricing
- setting a low price for a new
product in order to attract a
large number of buyers and a
large market share.
Product Mix Pricing Strategies
1. Product line pricing
- setting the price steps between
various products in a product
line based on cost differences
between the products, customer
evaluations of different features,
and competitors’ prices
2. Optional-product pricing
- the pricing of optional or
accessory products along with a
main product.
3. Captive-product pricing
- setting a price for products that
must be used along with a main
product.
4. By-product pricing
- setting a price for by-products
in order to make the main
product’s price more
competitive.
5. Product bundle pricing
- combining several products
and offering the bundle at a
reduced price.
Price-Adjustment Strategies
1. Discount and Allowance
pricing
a. cash discount - a price
reduction to buyers who pay
their bills promptly.
b. quantity discount - a price
reduction to buyers who buy
large volumes.
c. Functional discount - a price
reduction offered by the seller to
trade channel member who
perform certain functions such
as selling, storing, and record
keeping.
d. seasonal discount - a price
reduction to buyers who
purchase merchandise or
services out of season.
e. allowance - promotional
money paid by manufacturers to
retailers in return for an
agreement to feature the
manufacturer’s products in
some way.
Trade allowance- price
reductions given for turning in
an old item when buying a new
one.
Promotional allowancespayments or price reductions to
reward dealers for participating
in advertising and sales support
programs.
2. Segmented Pricing
- selling a product or service at
two or more prices, where the
difference in prices is not based
on differences in costs.
3. Psychological pricing considers the psychology of
prices and not simply the
economics; the price is used to
say something about the
product
reference prices - prices that
buyers carry in their minds and
refer to when they look at a
given product
4. Promotional pricing temporarily pricing products
below the list price, and
sometimes even below cost, to
increase short-run sales.
5. Geographical pricing
a. FOB-origin pricing goods are placed free on board a
carrier; the customer pays the
freight from the factory to the
destination.
b. uniform-delivered pricing the company charges the same
price plus freight to all
customers, regardless of their
location.
c. Zone pricing - the company
sets up two or more zones. All
customers within a zone pay the
same total price; the more
distant the zone, the higher the
price.
d. basing-point pricing - the
seller designates some city as a
basing point and charges all
customers the freight cost from
that city to the customer
location, regardless of the city
from which the goods are
actually shipped.
e. Freight-absorption pricing the seller absorbs all or part of
the actual freight charges in
order to get the desired business.
Public Policy and Pricing
price fixing - states that sellers
must set prices without talking
to competitors.
predatory pricing - selling
below cost with the intention of
punishing a competitor or
gaining higher long run profits
by putting competitors out of
business.