Chapter 20 Setting the right price

Steps in Setting the Right Price Results lead to the right price Fine tune with pricing tactics Choose a price strategy Estimate demand, costs, and profits Establish pricing objectives http://vision.puma.com/us/en/2010/04/puma-launches-new-sustainable-packaging-designed-by-yves-behar/

Pricing Strategies Skimming pricing strategy: the use of a high price relative to competitive offerings. Skimming http://www.youtube.com/watch?v=xlcygXYK_Y0&feature=player_embedded

Pricing Strategies Skimming Penetration Penetration pricing policy: the use of relatively low price as compared with competitive offerings Penetration

http://www. marketing-ninja http://www.marketing-ninja.com/market-analysis/apple-to-focus-on-market-penetration-instead-of-market-skimming-with-3g-iphone/ http://www.wired.com/epicenter/2007/09/four-mistakes-a/

Pricing Strategies Skimming Penetration Status quo Status quo pricing policy: the use of relatively similar price as compared with competitive offerings Penetration Status quo

Tactics for Fine-Tuning the Base Price Special pricing tactics Discounts, Allowances, Rebates Geographic pricing

Reductions From List Price Cash Discounts Cash discount: price reduction offered to a consumer, industrial user, or marketing intermediary in return for prompt payment of a bill.

Reductions From List Price Cash Discounts Trade Discounts: payment to a channel member or buyer for performing marketing functions Trade Discounts

Reductions From List Price Cash Discounts Quantity discount: price reduction granted for a large-volume purchase. Sliding scale rebate. Trade Discounts Quantity Discounts

Three Basic Marketing Price Structures/Services Challenges: 1. Costs difficult to trace. 2. Labor is more difficult to price than materials. 3. Costs may not equal the value that customers perceive the services are worth. Challenges: 1. Small firms may charge too little to be viable. 2. Prices may not reflect customer value. Cost-based Competition- based Demand-based/value Challenges: 1. Monetary price must be adjusted to reflect the value of non-monetary costs. 2. Information on costs is less available to customers; hence, price may not be a central factor.

Geographic Pricing FOB (free on board) Origin: Freight Absorption pricing: Uniform-delivered price: Zone pricing: Basing-point system:

Zone Pricing

Basing-point Pricing $30 freight $20 freight Seattle customer pays $130 Los Angeles customer pays $120 St. Louis plant is “basing-point” $100 base price Chicago customer pays $110

Other Pricing Tactics Single price Offers all goods/services at the same price Two part pricing Charge two separate amounts for 1 product Price Lining Several line items at specific price points Leader Pricing Sell product at near or below cost Bait Pricing Lure customers through false or misleading price advertising Odd-Even Pricing Odd-number prices imply bargain Even-number prices imply quality Price Bundling Combining two or more products in a single package

Summary Any questions??