PRICING INTRO 2

PRICING STRATEGIES

 A pricing strategy is a plan to price a product to achieve specific marketing objectives. Slide 3

PRICING STRATEGIES  Market skimming  with no competition, set the price high  reach BEP quickly  reduce price once costs are covered

PRICING STRATEGIES  Market skimming  Some big weaknesses! › If you do not recoup costs before competition enters, you could be at a disadvantage Slide 5

PRICING STRATEGIES  Market skimming › competition benefits from: ◦ R&D (1st company did it) ◦ consumer awareness (first company paid for ads) ◦ distribution methods (set up by 1st co.) ˆ competition can charge less Slide 6

PRICING STRATEGIES  Market skimming  sometimes used to limit demand if you cannot produce enough to meet heavy demand  initial high price attracts wealthy trendsetters

PRICING STRATEGIES  Penetration Pricing  initially set a low price to attract customers  very risky  set price at a competitive level, even without competitors  competition will need to meet or beat price (which may take time, delay entry)

PRICING STRATEGIES  Penetration Pricing  costs will be quickly recouped because of demand  lower price encourages customers to buy rather than wait, product is more easily positioned, top-of-the-mind awareness held longer

PRICING STRATEGIES  Penetration Pricing  strategy should only be used when variable costs are low and one-time development costs are high

PRICING STRATEGIES  Competitive Pricing  most popular strategy  products in a specific category match/follow competitors closely  companies compete using something other than price: ads, promos, distribution, product features

PRICING STRATEGIES  Competitive Pricing  manufacturer with largest market share, first product, or longest on market sets benchmark price  others compare their product, set their price in relation (remember costs vs benefits = value)  simple for others to create a product that offers more, same, or less and justify their pricing

PRICING STRATEGIES  Competitive Pricing  some retailers have a strict competitive price policy and will meet or beat others’ prices  some stores hire competitive shoppers who research the competition to ensure best price

Pricing Policies

PRICING POLICIES  decisions individual businesses make about how to best price their product for the intended market to achieve intended results:  increased sales, and/or  increased profitability

PRICING POLICIES  Leader Pricing  generate traffic in the store  offer great prices on a few key items, encourage buyers to purchase other products  EXAMPLES: Deep discounts, big sale prices, “door crasher specials”

PRICING POLICIES  Price Lining  place all products with same prices in the same place  customers don’t have to price compare  store can earn higher profit  EXAMPLES: CDs, printed t- shirts, “bargain bins” where (diff) items are all same price

PRICING POLICIES  Everyday Low Prices  policy states that the store offers the lowest price on all products  saves store time, advertising  positive reputation for giving customers better prices  EXAMPLES: WalMart, Zellers

PRICING POLICIES  Super Sizing  creating the opportunity to purchase a slightly larger product for a bit less money  price increase is mostly profit  EXAMPLES: McDonalds. ‘Nuff said.

PRICING POLICIES  Super Sizing 12 oz drink: $ 1.09 Cost of pop: 0.5¢/oz = 6¢ Cost of cup = 5¢ Profit = 98¢ = 891% profit 20 oz drink: $ 1.69 Cost of pop:.05¢/oz = 10¢ Cost of cup = 6¢ Profit = 153¢ = 956% profit 8 extra oz: $ 0.60 Cost of pop:.05¢/oz = 4¢ Cost of cup = 1¢ Profit = 55¢ = 1100% profit

PRICING POLICIES  Negotiated Pricing  buyer makes a purchase offer, seller makes offer to sell at lower than published price  most commonly done with cars, houses

PRICING POLICIES  Interest-Free Pricing  allow customer to purchase a product and to defer payment with no interest  store makes arrangement with a financial company to collect

PRICING POLICIES  Combo Pricing (or Bundling)  offering a discount on a product, so long as the consumer buys several in a package  profit on non-discounted products make up for profit lost on discounted product

PRICING POLICIES  Psychological Pricing  uses consumer behaviour to set pricing  consumers may not pay $100 for a product, but since $99.99 is less than $100 it’s a deal

PRICING POLICIES  Return on Investment (ROI)  looking at overall revenue and profit over a period of time  eg. store buys $50,000 of goods with 90 days to pay, sells goods in 30 days, has 60 days to use (invest) money before paying

PRICING POLICIES  Purchase Discounts  price reductions for larger number purchased  price reduction takes different forms: free shipping, display units, bonus items = reduce the cost of doing business

PRICING POLICIES  Purchase Discounts  early payment discounts  used to encourage buyers to pay sooner than payment is due (usually 30, 60 days)  ie. 2% if paid in 10 days  company gets money faster

BELL WORK  You make cotton t-shirts in Cambridge. You want to sell your shirts in Brazil. Besides production, what are all the things you need to factor when calculating your cost?  (prizes for table with most complete list)

PRICING FOR THE INTERNATIONAL MARKET

Pricing for the Int’l Market  Setting a price for a product in the international market is difficult.  Things to consider: tariffs, transportation costs, currency values, extra charges

Pricing for the Int’l Market  Tariffs - taxes levied by governments on imported goods - used to protect domestic industries from low-priced imports - is it worth selling internationally?

Pricing for the Int’l Market  Tariffs  Three types: - most-favoured-nation (MFN) tariffs (Canada has with most countries)

Pricing for the Int’l Market  Tariffs  Three types: - preferential tariff rates (with most important and most needy trading partners)

Pricing for the Int’l Market  Tariffs  Three types: - general tariff rate (for all other countries, set at 35% by World Trade Organization)

Pricing for the Int’l Market  ROOTS Cap  $20 CDN

Pricing for the Int’l Market  ROOTS Cap in Australia  $ % PTR = $22.10

Pricing for the Int’l Market  Transportation Costs - usually only two alternatives: fast and expensive, slow and inexpensive - second alternative is cheaper when using containerization (big shipping containers)

Pricing for the Int’l Market  ROOTS Cap in Australia  $20 + $2.10 PTR + $.25 shipping = $22.35

Pricing for the Int’l Market  Currency Values - fluctuations in currency values need to be accounted for when setting international prices

Pricing for the Int’l Market  The final cost for a product in a foreign country—including the tariff, shipping cost, and currency exchange—is called the landed cost.

Pricing for the Int’l Market  ROOTS Cap in Australia  ($20 + $2.10 PTR + $.25 shipping) x 1.23 exchange rate = $27.67

Pricing for the Int’l Market  Extra Charges - special insurance - banking services (currency exchange, etc.) - special taxes on transportation, airports, etc. - packaging regulations