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 objectives

Pricing Strategies Skimming pricing strategy: the use of a high price relative to competitive offerings. Skimming dded

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

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

Three Basic Marketing Price Structures Demand-based Cost-based Competition- based 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. 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.

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

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

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

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

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

Zone Pricing

Basing-point Pricing $10 freight $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

Price LiningSeveral line items at specific price points Leader PricingSell 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 Other Pricing Tactics

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