1. Pricing Strategies and Tactics
Chapter Twenty
Pricing Strategies and Tactics

2. Objectives Identify various pricing strategies
Discuss differential pricing strategies
Describe skimming and penetration pricing
Demonstrate competition’s effect on pricing
Discuss inflation’s effect on pricing
Discuss product-line pricing strategies
Explore psychological aspects of price
Demonstrate geography’s influence on pricing
Discuss varied pricing tools
Overview legal restrictions on pricing
Identify a major ethical issue related to price

3. Pricing Strategies Differential pricing strategies
Competitive pricing strategies
Product-line pricing strategies
Psychological and image pricing strategies
Distribution-based pricing strategies

4. Differential pricing strategies
$24.95
Different buyers pay different prices
$22.00
100 units for $2,000
155 Russian rubles each

5. Differential Pricing Strategies
Types:
Variable Pricing
Second-Market Discounting
Skimming
Periodic discounting
Random discounting
$24.95
$22.00
100 units for $2,000
155 Russian rubles each

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

7. Competitive Pricing Strategies
Types:
Meeting competition
Undercutting competition
Price leadership
Follow the leader
Penetration pricing
Predatory pricing
Traditional
Inflationary

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

9. Product-Line Pricing Strategies
Captive pricing
Leader and Bait pricing
Price lining
$45.99
$39.99
$24.99
$19.99
Price-bundling & Multi-unit

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

11. Distribution-Based PricingX
F.O.B
Delivered
Zone
Uniform
Basing-point

12. Markups Manufacturer Wholesaler Retailer Cost $20.00 20% markup $ 5.00
Selling price $25.00
Wholesaler
Cost $25.00
15% markup $ 4.41
Selling price $29.41
Retailer
Cost $29.41
41% markup $20.59
Selling price $50.00

13. Establishing Exact Prices
Markup on
Selling Price
and on Cost
Cost-Plus
Method
Break-even
Analysis
Target Return
Pricing
Average
Cost

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

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

16. Break-Even Analysis Total Revenues Profit Cost &Revenue ($)
Units produced & sold
Cost &Revenue ($)
Loss
Profit
Break-
even
point
Total Costs
Fixed Costs

17. Price Adjustments Cash discounts Trade discounts Quantity discounts
Seasonal discounts
Chain discounts
Promotional allowances 36

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

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

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

21. Review Identify various pricing strategies
Discuss differential pricing strategies
Describe skimming and penetration pricing
Demonstrate competition’s effect on pricing
Discuss inflation’s effect on pricing
Discuss product-line pricing strategies
Explore psychological aspects of price
Demonstrate geography’s influence on pricing
Discuss varied pricing tools
Overview legal restrictions on pricing
Identify a major ethical issue related to price