1. Chapter 15 Strategic Pricing Methods and Tactics
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2. Learning Objectives (1 of 2)
Learning Objective 15.1 Identify three methods that firms use to set their prices. Learning Objective 15.2 Describe the difference between an everyday low pricing (EDLP) strategy and a high/low strategy. Learning Objective 15.3 Explain the difference between a price skimming and a market penetration pricing strategy.
LO 15.1 Identify three methods that firms use to set their prices.
LO 15.2 Describe the difference between an everyday low pricing (EDLP) strategy and a high/low strategy.
LO 15.3 Explain the difference between a price skimming and a market penetration pricing strategy.
These are the learning objectives for this chapter.

3. Learning Objectives (2 of 2)
Learning Objective 15.4 Identify tactics used to reduce prices to consumers. Learning Objective 15.5 Identify tactics used to reduce prices to businesses. Learning Objective 15.6 List the pricing practices that are illegal or unethical.
LO 15.4 Identify tactics used tor educe prices to consumers.
LO 15.5 Identify tactics used to reduce prices to businesses.
LO 15.6 List the pricing practices that are illegal or unethical.
These are additional learning objectives for this chapter.

4. Tiffany & Co.
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5. Considerations for Setting Price Strategies
Note the many factors that go into formulating a pricing strategy and discuss why some strategies choose not to take into consideration the value that consumers place on an offering.
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6. Value-Based Methods
Setting prices that focus on the overall value of the product offering as perceived by the consumer:
Improvement Value Method
Cost of Ownership Method
Sellers need to determine consumer value perceptions.
These methods require a great deal of research to be implemented successfully.
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7. Value-Based Methods: Improvement Value
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8. PROGRESS CHECK (1 of 3)
What are the three different considerations for setting prices?
How can you use value-based methods for setting prices?
Cost-based, competitor-based, value-based
Value-based methods include approaches to setting prices that focus on the overall value of the product offering as perceived by the consumer. Two key approaches include Improvement Value Method and Cost of Ownership Method.

9. Everyday low pricing (EDLP)
Pricing Strategies
Everyday low pricing (EDLP)
High/Low Pricing
This slide introduces the subsequent series of slides or can be used as a basis for a shortened lecture.

10. Everyday Low Pricing (EDLP) vs. High/Low Pricing
Create value for consumers in different ways. EDLP reduces consumers’ search costs. High/low provides the thrill of the chase for the lowest price.
Group activity: Imagine you need an outfit for an upcoming party. You can visit TJMaxx, where you know you will find an EDLP pricing strategy. However, Nordstrom is having its semi-annual sale, during which it drastically marks down its usually high prices. Where do you think you will find a better price? Which offers better value? Why?

11. In High/Low Pricing Consumers Use Reference Prices
Internal reference price
External reference price
Group activity: In groups, list the average prices of the following items: rent on a one-bedroom apartment, a backpack, a washing machine, a mid-size car, a house, a bicycle, and a soda. Compare the price points among groups.
Usually, students provide relatively accurate price points for products they use frequently, but their estimates likely vary significantly for the other items. Discuss how they determined these prices.

12. New Product Pricing Strategies
Market Penetration Pricing Price Skimming
Group activity: Develop a list of products that might use price skimming versus penetration pricing. What qualities should a product possess to use a price skimming strategy? For example, Godiva introduced its hot chocolate mix at a price point that was double that of other hot cocoa mixes. How was it able to achieve success with this product?
Penetration pricing helps firms build market share for their new products quickly, but consumers must be price elastic for this strategy to work.
Price skimming is often used for high-demand video games like Far Cry 5 because fans will pay a higher price to be one of the first to own the newest version.
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13. Pricing Tactics Aimed at Consumers (1 of 2)
Markdowns
Quantity Discounts
Seasonal Discounts
Coupons
Rebates
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14. Pricing Tactics Aimed at Consumers (2 of 2)
Leasing/Rentals
Price Bundling
Leader Pricing
Price Lining
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15. Business Pricing Tactics and Discounts
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16. PROGRESS CHECK (2 of 3)
What are some consumer-oriented pricing tactics?
What are some B2B-oriented pricing tactics?
EDLP saves search costs of finding lowest overall prices, and High/low provides the thrill of the chase for the lowest price.
Price skimming and penetration pricing.

17. Legal and Ethical Aspects of Pricing
Deceptive or illegal price advertising
Predatory pricing
Legal and Ethical Aspects of Pricing
A host of laws and regulations at both the federal and state levels attempt to prevent unfair pricing practices, but some are poorly enforced, and others are difficult to prove.
Price discrimination
Price fixing

18. Deceptive or Illegal Price Advertising
Deceptive reference prices Loss-leader pricing Bait and switch
Ask students: When is a sale not really a sale?
Answer: If the merchandise is placed on the retail floor and almost immediately put on sale, then it is considered to be deceptive because the merchandise was never really sold at the higher price, but consumers are expected to believe that they are receiving a significant discount.
Ask students: Have you ever been involved in a bait and switch?
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19. Predatory Pricing Illegal Difficult to prove
Prices set low with the intent to drive competitor out of business
Illegal
Difficult to prove
Ask students: How would a company prove predatory pricing?
Answer: They would need records that show intent or have interviews of those who can verify the intent to drive competition out of business. In addition, they must show that the company charged prices lower than its average costs. To date, no one has been able to prove that Walmart engages in predatory pricing.

20. Price Discrimination Is not always illegal
Different rules in the B2B and B2C markets
Federal law does not apply to sales to end consumers
Price discrimination in a B2B setting isn’t always illegal. It is legal to give quantity discounts, to meet competition, and in barter situations.
Ask students: Why are quantity discounts legal? Answer: Because it costs less on a per unit basis to sell to customers that buy larger quantities.

21. Horizontal price fixing
Vertical price fixing
Horizontal price fixing
Price Fixing
Ask students: How many products list a manufacturer’s suggested retail price? How many indicate a retail price instead?
Note that MSRPs are a form of vertical price fixing; the manufacturer sets the price, and wherever the consumer shops, the price will be the same. However, some retailers argue that this form of price fixing prevents them from passing lower costs on to consumers.
Ask students: What do you think?
According to the U.S. Department of Justice, Apple and several publishing agencies have engaged in vertical price fixing, as outlined in Ethical & Societal Dilemma 14.1 The Verdict: Apple Conspired to Raise Prices on eBooks.

22. Gray Market Pricing
Uses irregular but not necessarily illegal methods. Gray market for luxury goods.
A gray market employs irregular but not necessarily illegal methods; generally, it legally circumvents authorized channels of distribution to sell goods at prices lower than those intended by the manufacturer. Ethical & Societal Dilemma 15.2 discusses how luxury goods marketers and manufacturers are trying to beat the gray market in Asia.

23. PROGRESS CHECK (3 of 3)
What common pricing practices are considered to be illegal or unethical?
Deceptive reference prices, loss-leader pricing, bait and switch, price fixing.

24. Marketing Chapter 15
The End