1. 19 Pricing Concepts
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2. Introduction to Pricing (1)
Pricing strategy (nothing you buy is priced too high)
Definition: value given up for benefits firm offers (fuzzy: good deal varies; real estate)
Positive: easiest “p” to change; determines revenues
Negative: difficult to evaluate; different to gain advantage

3. Introduction to Pricing (2)
Pricing Strategy (cont…)
Reference price: consumers’ ideas of what price “should” be (What for gallon gas? CD? Movie?)
Flexibility
Administered prices
Firms decide on price vs mkt. (fluctuation is relatively uncommon)
Channel conflict (MSRP)

4. Introduction to Pricing (3)
Pricing Strategy (cont…)
Flexibility
One price: same price to all under same conditions
Flexibility: price differs by customer; negotiation
Problem: dissatisfaction; searching for deals (texts)
Easier now – tech (freq. Shopper)
“Name your price” (PriceLine)
(-)
Some dislike (autos)
Customer satisfaction
“Habit” forming (U.S. autos)

5. Priceline Commercial

6. Pricing Objectives (1)
Sales Oriented: amount sold in units, dollars, mkt share – no ref. to profit
Market share: part of industry/area sales
Measurement is easy
Problem: must have some profit (large sales  profits; Eastern airlines; dot-coms)

7. Pricing Objectives (2) Status Quo Oriented:
Happy where we are (problem: not strategic; Taco Bell)
Form: non price competition; meet competition
Ex. avoid price war
Focus on other p’s
Why? (emphasize quality; & only one low price)
What products can you think of??

8. Taco Bell Commercial

9. Pricing Objectives (3) Profit Oriented Target return
Profit rel. to financial yardstick (sales, invest, industry avg.)
(+) objective (driven by quarterly earnings)
Satisfactory profits: lifestyle, utilities
Profit maximization: most earnings possible…
Not necessarily high price (W-Mart; mass merch. Concept)
Should be goal of business
Trick: how do you know?

10. Pricing Objectives (4) Allowances and Discounts
Awarded for giving something up or doing it yourself
Forms
Sale (500) temporary reduction in list price; adjust inventory quickly (excitement)
Quantity disct: decrease for buying more
May be price cuts or additional goods (movie rentals; freq. Flier)
Cumulative:
For buying over time (Subway;
buy ten, one free)
Loyalty
Non-cumulative:
For one purchase
Decrease storage

11. Pricing Objectives (5) Allowances and Discounts (cont…)
ad allowance: price reduction for downstream ads
stocking allowance
pay for retail space (Wal-Mart)
mainly for new (justify: costs)

12. Pricing Objectives (6) Allowances and Discounts (cont…)
Push money/spiffs/p.m.
Retailer incentives for aggressive selling (target: sales force)
Question: incentives
Trade-in: price reduction for old items
Seasonal: unpopular times (storage; heating oil)

13. Payment Terms Net: full amount Cash Discount: reduction to pay early
2% discount if paid w/in 10 days;
full payment due in 30 (BIG take anyway)

14. Summary Objectives: sales – status quo - profit Allowances & discounts
Administered vs. flexible
Read:
Robinson-Patman Act (pg )
Skimming/Penetration Pricing (pg )