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Pricing Strategies and TacticsPricing Strategies and Tactics
Chapter SeventeenChapter Seventeen
ObjectivesObjectives
Identify various pricing strategiesDiscuss differential pricing strategiesDescribe skimming and penetration pricingDemonstrate competition’s effect on pricingDiscuss inflation’s effect on pricingDiscuss product-line pricing strategiesExplore psychological aspects of priceDemonstrate geography’s influence on pricingDiscuss varied pricing toolsOverview legal restrictions on pricingIdentify a major ethical issue related to price
Pricing StrategiesPricing StrategiesPricing StrategiesPricing Strategies
Differential pricing strategiesCompetitive pricing strategiesProduct-line pricing strategiesPsychological and image pricing
strategiesDistribution-based pricing strategies
Differential pricing strategiesCompetitive pricing strategiesProduct-line pricing strategiesPsychological and image pricing
strategiesDistribution-based pricing strategies
Differential pricing Differential pricing strategiesstrategies
Different buyers pay different prices
$24.95$22.00100 units for
$2,000
155 Russian rubles
each
Differential Pricing Differential Pricing StrategiesStrategies
Differential Pricing Differential Pricing StrategiesStrategies
Types:Variable PricingSecond-Market
DiscountingSkimmingPeriodic discountingRandom discounting
Types:Variable PricingSecond-Market
DiscountingSkimmingPeriodic discountingRandom discounting
$24.95
$22.00100 units for $2,000
155 Russian rubles each
Price SkimmingPrice Skimming
Pricing high, usually at the Pricing high, usually at the beginning of a product’s lifebeginning of a product’s lifeExamples:Examples: personal computerspersonal computers CDsCDs electronicselectronics
Competitive Pricing Competitive Pricing StrategiesStrategies
Competitive Pricing Competitive Pricing StrategiesStrategies
Meeting competitionUndercutting competition
Meeting competitionUndercutting competition
Types:Types:
Price leadershipFollow the leader
Price leadershipFollow the leaderPenetration pricingPredatory pricingTraditionalInflationary
Penetration pricingPredatory pricingTraditionalInflationary
Penetration PricingPenetration Pricing
Low introductory price to Low introductory price to establish product quickly in establish product quickly in marketmarket
When to use:When to use: Elastic demandElastic demand Economies of scaleEconomies of scale Threat of strong competitionThreat of strong competition Mass marketMass market
Low introductory price to Low introductory price to establish product quickly in establish product quickly in marketmarket
When to use:When to use: Elastic demandElastic demand Economies of scaleEconomies of scale Threat of strong competitionThreat of strong competition Mass marketMass market
Product-Line PricingProduct-Line PricingStrategiesStrategies
Product-Line PricingProduct-Line PricingStrategiesStrategies
Captive pricing
Leader and Bait pricing
Price lining$45.99$39.99 $24.99 $19.99
Price-bundling & Multi-unit
Psychological & Image Psychological & Image PricingPricing
Psychological & Image Psychological & Image PricingPricing
Regular price: $45Regular price: $45
Now Only: Now Only: $25$25
Reference Pricing
Odd/Even Pricing
$1.87$1.87$4.95$4.95$9.99$9.99
$175 $175 $1000$1000
Prestige Pricing
Distribution-Based Distribution-Based PricingPricing
Distribution-Based Distribution-Based PricingPricing
F.O.BDelivered
ZoneUniform
Basing-point
XX
XX
MarkupsMarkupsMarkupsMarkups
ManufacturerManufacturer
CostCost $20.00$20.0020% markup20% markup $ 5.00$ 5.00Selling priceSelling price $25.00$25.00
WholesalerWholesaler
CostCost $25.00$25.0015% markup15% markup $ 4.41$ 4.41Selling priceSelling price $29.41$29.41
RetailerRetailer
CostCost $29.41$29.4141% markup41% markup $20.59$20.59Selling priceSelling price $50.00$50.00
Establishing Exact Establishing Exact PricesPrices
Establishing Exact Establishing Exact PricesPrices
Markup onMarkup onSelling PriceSelling Priceand on Costand on Cost
Cost-PlusCost-PlusMethodMethod
Break-evenBreak-evenAnalysisAnalysis
Target ReturnTarget ReturnPricingPricing
AverageAverageCostCost
Establishing Exact Establishing Exact PricesPrices
Establishing Exact Establishing Exact PricesPrices
Markup on Selling Price or Costs:Markup on Selling Price or Costs:
= % markup= % markupAmount added onAmount added on------------------------------------------------
Selling priceSelling price
Cost + Amount added on = PriceCost + Amount added on = PriceCost-Plus Method:Cost-Plus Method:
Average-cost method:Average-cost method:
All costsAll costs------------------------ =------------------------ =# Units produced# Units produced
Average costAverage costof a single unitof a single unit
Establishing Exact Establishing Exact PricesPrices
Establishing Exact Establishing Exact PricesPrices
Target Return Pricing:Target Return Pricing:
Fixed costs + Target returnFixed costs + Target return-------------------------------------- =-------------------------------------- =
Units to be soldUnits to be sold
PricePriceper unitper unit
LossLoss
Loss
Loss
Profit
Profit
ProfitProfit
Break-Break-evenevenpointpoint
Units produced & soldUnits produced & sold
Cost
&R
even
ue (
$)
Cost
&R
even
ue (
$) Total RevenuesTotal Revenues
Total CostsTotal Costs
Fixed CostsFixed Costs
Break-Even AnalysisBreak-Even AnalysisBreak-Even AnalysisBreak-Even Analysis
Price AdjustmentsPrice AdjustmentsPrice AdjustmentsPrice Adjustments
Cash discountsTrade discountsQuantity discountsSeasonal discountsChain discountsPromotional
allowances
Cash discountsTrade discountsQuantity discountsSeasonal discountsChain discountsPromotional
allowances
Pricing and the LawPricing and the Law
ROBINSON-PATMAN ACT OF 1936
Discriminatory prices illegal unless….Charged to meet competitionJustified by cost savings
Pricing and the LawPricing and the Law
Fair Trade Practices Act and their repeal in 1975
States: manufacturers may fix final selling price
Federal gov’t: illegal if good sold in different state
Pricing and Ethical Pricing and Ethical issuesissues
Are corporate social policy and corporate profit motive compatible?
ReviewReview
Identify various pricing strategiesDiscuss differential pricing strategiesDescribe skimming and penetration pricingDemonstrate competition’s effect on pricingDiscuss inflation’s effect on pricingDiscuss product-line pricing strategiesExplore psychological aspects of priceDemonstrate geography’s influence on pricingDiscuss varied pricing toolsOverview legal restrictions on pricingIdentify a major ethical issue related to price
