Chapter 18 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 goals

Price Skimming Situationswhen is Successful Situationswhen Price Skimming is Successful Superior Product Legal Protection of Product Limited Production Technological Breakthrough Inelastic Demand

Penetration Pricing AdvantagesAdvantages  Discourages or blocks competition from market entry DisadvantagesDisadvantages  Requires gear up for mass production  Selling large volumes at low prices  Strategy to gain market share may fail

Status Quo Pricing AdvantagesAdvantages  Simplicity  Safest route to long- term survival for small firms DisadvantagesDisadvantages  Strategy may ignore demand or cost

The Legality and Ethics of Price Strategy Issues That Limit PricingDecisionsIssues PricingDecisions Unfair Trade Practices Price Fixing Price Discrimination Predatory Pricing

Tactics for Fine-Tuning the Base Price Fine-TuningPricingTacticsFine-TuningPricingTactics Special Pricing Tactics Discounts Geographic Pricing

Tactics for Fine-Tuning the Base Price Common Tactics forFine-Tuning the Base Price Common Tactics forFine-Tuning the Base Price Quantity Discounts Cash Discounts Functional Discounts Seasonal Discounts Promotional Allowances Rebates Value-Based Pricing

Special Pricing Tactics Single-Price Tactic Flexible Pricing Professional Services Pricing Professional Services Pricing Price Lining Leader Pricing Bait Pricing Odd-Even Pricing Price Bundling Two-Part Pricing All goods offered at the same price Different customers pay different price Used by professionals with experience, training or certification Used by professionals with experience, training or certification Several line items at specific price points Sell product at near or below cost Lure customers through false or misleading price advertising Lure customers through false or misleading price advertising Odd-number prices imply bargain Even-number prices imply quality Odd-number prices imply bargain Even-number prices imply quality Combining two or more products in a single package Combining two or more products in a single package Two separate charges to consume a single good

Relationships among Products Relationships Among Products Relationships Among Products Complementary Substitutes Neutral

Cost-Oriented Tactics  A high volume of sales on an item with a low profit margin may still make the item highly profitable  Eliminating a product may reduce economies of scale  Eliminating a product may affect the price- quality image of entire line Problems with Cost-Oriented Tactics

Demand-Oriented Tactics Strategies to Make Demand More Inelastic Strategies to Make Demand More Inelastic Cultivate selected demand Create unique offerings Change the package design Heighten buyer dependence