1. Chapter 20: Setting the Right Price
Introduction to
Chapter 20: Setting the Right Price
Designed & Prepared by Laura Rush
B-books, Ltd.
Copyright Cengage Learning 2013
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2. Copyright Cengage Learning 2013
Chapter 20 Setting the Right Price
Learning Outcomes
Describe the procedure for setting the right price
Identify the legal and ethical constraints on pricing decisions Explain how discounts, geographic pricing, and other pricing tactics can be used to fine-tune the base price
Discuss product line pricing
Describe the role of pricing during periods of inflation and recession
LO1
LO2
LO3
LO4
LO5
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3. Establish Pricing Goals
Chapter 20 Setting the Right Price
Establish Pricing Goals
Profit-Oriented
Sales-Oriented
Status Quo
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4. Choose a Price Strategy
Chapter 20 Setting the Right Price
Choose a Price Strategy
Price skimming - A firm charges a high
introductory price, often coupled
with heavy promotion.
Penetration Pricing - A firm charges a
relatively low price for a product initially as a way
to reach the mass market.
Status Quo Pricing - Charging a price
identical to or very close to the competition’s price.
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5. The Legality and Ethics of Price Strategy
Chapter 20 Setting the Right Price
The Legality and Ethics of Price Strategy
Unfair Trade Practices
Price Fixing
Price Discrimination
Predatory Pricing
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6. Tactics for Fine-Tuning the Base Price
Chapter 20 Setting the Right Price
Tactics for Fine-Tuning the Base Price
Special pricing tactics
Discounts
Geographic pricing
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7. Discounts, Allowances, Rebates, and Value-Based Pricing
Chapter 20 Setting the Right Price
Discounts, Allowances, Rebates, and Value-Based Pricing
Quantity Discounts
Cash Discounts
Functional Discounts
Seasonal Discounts
Promotional Allowances
Rebates
Zero Percent Financing
Value-Based Pricing
Markdown Money
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8. Pricing Products Too Low
Chapter 20 Setting the Right Price
Pricing Products Too Low
Managers attempt to buy market share through aggressive pricing.
Managers tend to make pricing decisions based on current costs, current competitor prices, and short-term share gains rather than on long-term profitability.
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9. Copyright Cengage Learning 2013
Chapter 20 Setting the Right Price
Geographic Pricing
Basing-point
pricing
Freight absorption
Zone pricing
Uniform delivered
FOB origin pricing
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10. Other Pricing Tactics Single-Price Tactic
Chapter 20 Setting the Right Price
Other Pricing Tactics
Single-Price Tactic
All goods offered at the same price
Flexible Pricing
Different customers pay different price
Professional
Services Pricing
Used by professionals with experience,
training or certification
Price Lining
Several line items at specific price points
Leader Pricing
Sell 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
Two-Part Pricing
Two separate charges to consume a single good
Pay What You Want
Allowing customers to pay what they think a
product is worth

11. Businesses Impose Consumer Penalties If...
Chapter 20 Setting the Right Price
Consumer Penalties
An irrevocable
loss of revenue
is suffered
Additional
transaction costs
are incurred
Businesses Impose Consumer Penalties If...
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12. Setting prices for an entire line
Chapter 20 Setting the Right Price
Product Line Pricing
Setting prices for an entire line
of products.
Online
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13. Relationships Among Products
Chapter 20 Setting the Right Price
Relationships Among Products
Complementary
Substitutes
Neutral
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14. Joint Costs Costs that are shared in the manufacturing
Chapter 20 Setting the Right Price
Joint Costs
Costs that are shared in
the manufacturing
and marketing of several
products in a product life.
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15. Cost-Oriented Tactics Demand-Oriented Tactics
Chapter 20 Setting the Right Price
Inflation
Cost-Oriented Tactics
High Inflation
Demand-Oriented Tactics
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16. Cost-Oriented Tactics
Chapter 20 Setting the Right Price
Cost-Oriented Tactics
Delayed-quotation pricing
Escalator pricing
Hold prices constant, but add new fees
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17. Demand-Oriented Tactics
Chapter 20 Setting the Right Price
Demand-Oriented Tactics
Strategies to Make
Demand
More Inelastic
Cultivate selected demand
Create unique offerings
Change the package design
Heighten buyer dependence
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18. Bundling or Unbundling
Chapter 20 Setting the Right Price
Recession
Value-Based Pricing
Bundling or Unbundling
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19. Supplier Strategies During Recession
Chapter 20 Setting the Right Price
Supplier Strategies During Recession
Renegotiating contracts
Offering help
Keeping the pressure on
Paring down suppliers
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