19 Pricing Concepts Professor Close.

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Presentation transcript:

19 Pricing Concepts Professor Close

Introduction to Pricing (1) Pricing strategy (nothing you buy is priced too high) Definition: value given up for benefits firm offers (fuzzy: good deal varies; real estate) Positive: easiest “p” to change; determines revenues Negative: difficult to evaluate; different to gain advantage

Introduction to Pricing (2) Pricing Strategy (cont…) Reference price: consumers’ ideas of what price “should” be (What for gallon gas? CD? Movie?) Flexibility Administered prices Firms decide on price vs mkt. (fluctuation is relatively uncommon) Channel conflict (MSRP)

Introduction to Pricing (3) Pricing Strategy (cont…) Flexibility One price: same price to all under same conditions Flexibility: price differs by customer; negotiation Problem: dissatisfaction; searching for deals (texts) Easier now – tech (freq. Shopper) “Name your price” (PriceLine) (-) Some dislike (autos) Customer satisfaction “Habit” forming (U.S. autos)

Priceline Commercial

Pricing Objectives (1) Sales Oriented: amount sold in units, dollars, mkt share – no ref. to profit Market share: part of industry/area sales Measurement is easy Problem: must have some profit (large sales  profits; Eastern airlines; dot-coms)

Pricing Objectives (2) Status Quo Oriented: Happy where we are (problem: not strategic; Taco Bell) Form: non price competition; meet competition Ex. avoid price war Focus on other p’s Why? (emphasize quality; & only one low price) What products can you think of??

Taco Bell Commercial

Pricing Objectives (3) Profit Oriented Target return Profit rel. to financial yardstick (sales, invest, industry avg.) (+) objective (driven by quarterly earnings) Satisfactory profits: lifestyle, utilities Profit maximization: most earnings possible… Not necessarily high price (W-Mart; mass merch. Concept) Should be goal of business Trick: how do you know?

Pricing Objectives (4) Allowances and Discounts Awarded for giving something up or doing it yourself Forms Sale (500) temporary reduction in list price; adjust inventory quickly (excitement) Quantity disct: decrease for buying more May be price cuts or additional goods (movie rentals; freq. Flier) Cumulative: For buying over time (Subway; buy ten, one free) Loyalty Non-cumulative: For one purchase Decrease storage

Pricing Objectives (5) Allowances and Discounts (cont…) ad allowance: price reduction for downstream ads stocking allowance pay for retail space (Wal-Mart) mainly for new (justify: costs)

Pricing Objectives (6) Allowances and Discounts (cont…) Push money/spiffs/p.m. Retailer incentives for aggressive selling (target: sales force) Question: incentives Trade-in: price reduction for old items Seasonal: buy @ unpopular times (storage; heating oil)

Payment Terms Net: full amount Cash Discount: reduction to pay early 2% discount if paid w/in 10 days; full payment due in 30 (BIG take anyway)

Summary Objectives: sales – status quo - profit Allowances & discounts Administered vs. flexible Read: Robinson-Patman Act (pg. 509-510) Skimming/Penetration Pricing (pg. 493-495)