1. Pricing Strategies Chapter 10: Pricing
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Chapter 10: Pricing

2. Pricing Is governed both by art and science.
Requires balancing a multitude of complex forces.
Cuts across every aspect of a small company.
Is an important signal of a product’s or service’s value to customers.
Involves both math and psychology.
Chapter 10: Pricing

3. Price Conveys Image
Price sends important signals to customers – quality, prestige, uniqueness, and others.
Common small business mistake: Failure to recognize extra value, service, quality, and other benefits they offer and charging prices that are too low.
Study: Only 15 percent to 35 percent of customers consider price to be the chief criterion when selecting a product or service.
Chapter 10: Pricing

4. Competition and Pricing
Must take into account competitors’ prices but it is not always necessary to match or beat them.
Key is to differentiate a company’s products and services.
Price wars often eradicate companies’ profits and scar an industry for years.
Best strategy: Stay out of a price war!
Chapter 10: Pricing

5. Focus on Value Value ≠ low price, however.
The “right” price for a product or service depends on the value it provides for a customer.
Two aspects:
Objective value
Perceived value
Value ≠ low price, however.
Chapter 10: Pricing

6. Dealing with Rising Costs
Communicate with customers
Focus on improving efficiency
Consider absorbing cost increases
Emphasize the value of your company’s product or service to customers
Anticipate rising costs and try to lock in raw material prices early
Chapter 10: Pricing

7. What determines price?
Price Ceiling ("What will the market bear?") ? ? ?
Final Price (What is the
company's desired "image?") ?
Acceptable
Price
Range ? ? ? ? ? ? ? ?
Price Floor ("What are the company's costs?")

8. Customized or Dynamic Pricing
A pricing technique in which the company sets different prices on the same products and services for different customers using the information that a company collects about its customers.
Chapter 10: Pricing

9. Introducing a New Product
Three Goals:
Getting the product accepted
Revolutionary products
Evolutionary products
Me-too products
Maintaining market share as competition grows
Earning a profit
Chapter 10: Pricing

10. Introducing a New Product
Three Basic Strategies:
Market penetration
Skimming
Sliding-down-the-demand-curve
Chapter 10: Pricing

11. Pricing Techniques Odd pricing Price lining Leader pricing
Geographical pricing
Opportunistic pricing
Chapter 10: Pricing

12. Pricing Techniques Discounts Bundling Optional-product pricing
Captive product pricing
Byproduct pricing
Suggested retail prices
Chapter 10: Pricing

13. Pricing for Retailers: Markup
Dollar Markup = Retail Price - Cost of Merchandise
Dollar Markup
Percentage (of Retail Price) Markup =
Retail Price
Dollar Markup
Percentage (of Cost) Markup =
Cost of Unit
Example:
Dollar Markup = $25 - $15 = $10
$10
= 40%
Percentage (of Retail Price) Markup =
$25
$10
= 67%
Percentage (of Cost) Markup =
$15
Chapter 10: Pricing

14. Pricing for Manufacturers: Breakeven Selling Price
Total fixed costs
Breakeven
Selling
Price {
Variable cost per unit
Quantity } { }
Profit + x
produced + =
Quantity produced
Chapter 10: Pricing

15. Pricing for Manufacturers: Breakeven Selling Price
Total fixed costs
Breakeven
Selling
Price {
Variable cost per unit
Quantity }
Profit { + x
produced } + =
Quantity produced
Example:
Breakeven
Selling
Price {
6.98/unit
$110,000
$ 0 + x
50,000 unit } + =
50,000 units
= $9.18 per unit
Chapter 10: Pricing

16. Pricing for Service Firms: Price per Hour
Price per Hour = Total cost per x
productive hour (1 - net profit target as
a % of sales)
Example: Ned’s TV Repair Shop
Price per Hour = $ per x
= $16.38 per hour
hour (1 -.18)
Chapter 10: Pricing

17. Consumer Credit Credit cards National Private Installment credit
Trade credit
Chapter 10: Pricing