Some Facets of Pricing n Why your tank of gas leaves you less upset these days n Is your cup of coffee a ‘rip off’? n Can’t we find the best bargains at.

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Presentation transcript:

Some Facets of Pricing n Why your tank of gas leaves you less upset these days n Is your cup of coffee a ‘rip off’? n Can’t we find the best bargains at auctions? n Why does my bag of chips have more air in it?

What We Will Discuss Today n Factors Affecting Prices ä Company factors ä Consumer factors ä Competitive factors n Pricing Approaches ä Cost-based ä Consumer-based ä Competitor based ?

Internal (Company) Factors 1 n Goals ä Survival ä Current Profit Maximization ä Market-Share Leadership ä Product-Quality Leadership n Marketing Mix Strategy pricing decisions must be coordinated with other marketing mix variables n Costs

Internal Factors 2 n Costs ä Variable Costs n economies of scale n experience curve ä Fixed Costs

External (Demand) Factors n Market Structure ä Pure competition: Price = Marginal costs ä Monopolistic competition: Price = Range ä Oligopolistic competition: Price based on competitors’ prices ä Pure monopoly: Price = ?? –Economics view –Reality n Consumer Perceptions of Value n Price Elasticity of Demand

What is an unFair Price?

Consumer Perceptions of Price and Value n Reference Price n Assymetry of Losses and Gains n ‘Fair’ and ‘Unfair’ Prices

Pricing Perception Issues n Odd versus even prices n Is $1.99 cheaper than $2.00? n Why is tax not included in the price?

Pricing Approaches n Cost-Based Pricing ä Cost-plus pricing ä Break even analysis ä Target profit pricing n Buyer-Based Pricing ä Perceived value n Competition-Based Pricing

Competition n Bidding ä Sealed bidding: chance of obtaining contract versus price ä Open bidding: auctions n Competitive Reactions ä hostile ä cooperative ä nature of the market?

Price/Quality Strategies Premium Strategy Overcharging Strategy Rip-off Strategy High-value Strategy Medium-value Strategy False Economy Strategy Superb Value Strategy Good Value Strategy Economy Strategy Price Quality

A Geography Question n Should we charge the same price to a customer in New York City as we do to a customer in Long Beach?

Geographic Pricing 1 n FOB (free-on-board)Origin Pricing ä goods are placed free on board carrier upon which title passes to customer

Geographic Pricing 2 n Uniform Delivered Pricing ä same price plus freight anywhere in U.S. n Zone Pricing

Discounts n Why discount? n How do we discount?

Timing of Discounts

n seasonal discounts n PLC discounting n random discounting

Types of Discounts 1 n price discrimination ä customer segment ä product form: the expensive sheep bladder vitamin ä image pricing n Loss Leader Discounts

Types of Discounts 2 n Psychological discounts: “was $359, now $299.” n Coupons n Cash Rebates

A Typology of Customers and Strategies Price Sensitivity Time Sensitivity High Low High Low Coupons EDLPFocus on Convenience Focus on List Prices, Quality

How to Increase Prices? n The “List Price” n How much to increase prices? ä gradually: JNDs ä all at once n Decrease product size or quantity: the shrinking candy bar

What We Discussed Today n Factors Affecting Prices ä Company factors ä Consumer factors ä Competitive factors n Pricing Approaches ä Cost-based ä Consumer-based ä Competitor based