McGraw-Hill/Irwin Copyright © 2009 by The McGraw-Hill Companies, Inc. All rights reserved. Part Two.

General Pricing Approaches Demand-Oriented Pricing Approaches Cost-Oriented Pricing Approaches Profit-Oriented Pricing Approaches Competition-Oriented Pricing Approaches

FIGURE 12-2 FIGURE 12-2 Four approaches for selecting an approximate price level 12-3.

Skimming Price Beginning price is the highest possible. Often used for new products. Effective when:.. 1) Enough customers will buy the product at the high price to make these sales profitable 2 ) The high initial price will not attract competitors. 3) Lowering price has only a minor effect on increasing sales volume and reducing unit costs. 4) Customers interpret the high price as high quality.. These four conditions exist when patents or copyrights protect the product or the product has a uniqueness that customers understand and that they value..

Skimming Price PRICEPRICE Sales Volume $400 $350 $300 $250 $200

FIGURE 12-2 FIGURE 12-2 Four approaches for selecting an approximate price level 12-6

Penetration Pricing The opposite of price skimming. A product is sold at a very low price in order to immediately appeal to the mass market. Predatory pricing is illegal..

FIGURE 12-2 FIGURE 12-2 Four approaches for selecting an approximate price level 12-8

Prestige Pricing Prestige pricing involves setting a high price so that quality- or status-conscious consumers will be attracted to the product and buy it. Products prestige pricing may sell worse at lower prices than at higher ones because buyers tend to associate a lower price with lower quality. $30,000. $

FIGURE 12-2 FIGURE 12-2 Four approaches for selecting an approximate price level 12-10

Odd-Even Pricing Pricing at.99 instead of 1.00 $ instead of $500. $29,999 instead of $30,000

FIGURE 12-2 FIGURE 12-2 Four approaches for selecting an approximate price level 12-12

Target Pricing Consumer Retailer Wholesaler Manufacturer Consumer will pay $120 Retailer will pay $60 Wholesaler will pay $36 Manufacturing cost is $32, not the needed $

FIGURE 12-2 FIGURE 12-2 Four approaches for selecting an approximate price level 12-14

Bundled Pricing

FIGURE 12-2 FIGURE 12-2 Four approaches for selecting an approximate price level 12-16

Yield Management Pricing Airline%20Seating%20Charts/ Airbus_A320_Northwest_ Airlines_Seating_Chart.gif $

Yield Management Pricing $ $275

Yield Management Pricing $ $350

Yield Management Pricing $

Yield Management Pricing $ $525

Yield Management Pricing $

Yield Management Pricing Airline%20Seating%20Charts/ Airbus_A320_Northwest_ Airlines_Seating_Chart.gif $

FIGURE 12-2 FIGURE 12-2 Four approaches for selecting an approximate price level End of Part Two. Go to Part Three.

End of Part Two. Go to Part Three.