Pricing Strategies and Tactics Chapter Seventeen

Objectives bIdentify various pricing strategies bDiscuss differential pricing strategies bDescribe skimming and penetration pricing bDemonstrate competition’s effect on pricing bDiscuss inflation’s effect on pricing bDiscuss product-line pricing strategies bExplore psychological aspects of price bDemonstrate geography’s influence on pricing bDiscuss varied pricing tools bOverview legal restrictions on pricing bIdentify a major ethical issue related to price

Pricing Strategies bDifferential pricing strategies bCompetitive pricing strategies bProduct-line pricing strategies bPsychological and image pricing strategies bDistribution-based pricing strategies bDifferential pricing strategies bCompetitive pricing strategies bProduct-line pricing strategies bPsychological and image pricing strategies bDistribution-based pricing strategies

Differential pricing strategies bDifferent buyers pay different prices $24.95 $ units for $2, Russian rubles each

Differential Pricing Strategies Types: bVariable Pricing bSecond-Market Discounting bSkimming bPeriodic discounting bRandom discounting Types: bVariable Pricing bSecond-Market Discounting bSkimming bPeriodic discounting bRandom discounting $24.95 $ units for $2, Russian rubles each

Price Skimming l Pricing high, usually at the beginning of a product’s life Examples: l personal computers l CDs l electronics

Competitive Pricing Strategies bMeeting competition bUndercutting competition bMeeting competition bUndercutting competition Types: bPrice leadership bFollow the leader bPrice leadership bFollow the leader bPenetration pricing bPredatory pricing bTraditional bInflationary bPenetration pricing bPredatory pricing bTraditional bInflationary

Penetration Pricing l Low introductory price to establish product quickly in market When to use: l Elastic demand l Economies of scale l Threat of strong competition l Mass market l Low introductory price to establish product quickly in market When to use: l Elastic demand l Economies of scale l Threat of strong competition l Mass market

Product-Line Pricing Strategies Captive pricingLeader and Bait pricingPrice lining $45.99 $39.99 $24.99 $19.99 Price-bundling & Multi-unit

Psychological & Image Pricing Regular price: $45 Now Only: $25 Reference Pricing Odd/Even Pricing $1.87 $4.95 $9.99 $175 $1000 Prestige Pricing

Distribution-Based Pricing bF.O.B bDelivered bZone bUniform bBasing-point X X

MarkupsMarkups Manufacturer Cost$ % markup$ 5.00 Selling price$25.00 Wholesaler Cost$ % markup$ 4.41 Selling price$29.41 Retailer Cost$ % markup$20.59 Selling price$50.00

Establishing Exact Prices Markup on Selling Price and on Cost Cost-PlusMethod Break-evenAnalysis Target Return Pricing AverageCost

Establishing Exact Prices Markup on Selling Price or Costs: = % markup Amount added on Selling price Cost + Amount added on = Price Cost-Plus Method:

Average-cost method: All costs = # Units produced Average cost of a single unit Establishing Exact Prices Target Return Pricing: Fixed costs + Target return = Units to be sold Price per unit

Loss Loss Profit Profit Break-evenpoint Units produced & sold Cost &Revenue ($) Total Revenues Total Costs Fixed Costs Break-Even Analysis

Price Adjustments bCash discounts bTrade discounts bQuantity discounts bSeasonal discounts bChain discounts bPromotional allowances bCash discounts bTrade discounts bQuantity discounts bSeasonal discounts bChain discounts bPromotional allowances

Pricing and the Law ROBINSON-PATMAN ACT OF 1936 Discriminatory prices illegal unless…. bCharged to meet competition bJustified by cost savings

Pricing and the Law Fair Trade Practices Act and their repeal in 1975 bStates: manufacturers may fix final selling price bFederal gov’t: illegal if good sold in different state

Pricing and Ethical issues Are corporate social policy and corporate profit motive compatible?

Review bIdentify various pricing strategies bDiscuss differential pricing strategies bDescribe skimming and penetration pricing bDemonstrate competition’s effect on pricing bDiscuss inflation’s effect on pricing bDiscuss product-line pricing strategies bExplore psychological aspects of price bDemonstrate geography’s influence on pricing bDiscuss varied pricing tools bOverview legal restrictions on pricing bIdentify a major ethical issue related to price