1. Chapter 11- slide 1 Copyright © 2009 Pearson Education, Inc. Publishing as Prentice Hall Entrepreneurship & Pricing Strategies

2. Chapter 11- slide 2 Copyright © 2010 Pearson Education, Inc. Publishing as Prentice Hall Pricing Products New-Product Pricing Strategies Product Mix Pricing Strategies Price Adjustment Strategies Price Changes Topic Outline

3. Chapter 11- slide 3 Copyright © 2010 Pearson Education, Inc. Publishing as Prentice Hall New-Product Pricing Strategies Market-skimming pricing Market- penetration pricing Pricing Strategies

4. Chapter 11- slide 4 Copyright © 2010 Pearson Education, Inc. Publishing as Prentice Hall New-Product Pricing Strategies Market-skimming pricing is a strategy with high initial prices to “skim” revenue layers from the market Product quality and image must support the price Buyers must want the product at the price Costs of producing the product in small volume should not cancel the advantage of higher prices Competitors should not be able to enter the market easily

5. Chapter 11- slide 5 Copyright © 2010 Pearson Education, Inc. Publishing as Prentice Hall New-Product Pricing Strategies Market-penetration pricing sets a low initial price in order to penetrate the market quickly and deeply to attract a large number of buyers quickly to gain market share Price sensitive market Inverse relationship of production and distribution cost to sales growth Low prices must keep competition out of the market Pricing Strategies

6. Chapter 11- slide 6 Copyright © 2010 Pearson Education, Inc. Publishing as Prentice Hall Companies have two choices when setting prices for a product during the introductory stage. These choices are ________ and ________. 1.market-skimming pricing; fixed pricing 2.market-skimming pricing; value pricing 3.value pricing; cost pricing 4.market-penetration pricing; market-skimming pricing

7. Chapter 11- slide 7 Copyright © 2010 Pearson Education, Inc. Publishing as Prentice Hall Companies have two choices when setting prices for a product during the introductory stage. These choices are ________ and ________. 1.market-skimming pricing; fixed pricing 2.market-skimming pricing; value pricing 3.value pricing; cost pricing 4.market-penetration pricing; market-skimming pricing

8. Chapter 11- slide 8 Copyright © 2010 Pearson Education, Inc. Publishing as Prentice Hall In order for market-penetration pricing to work, which of the following market conditions must be met? 1.The market must not be price sensitive. 2.Production and distribution costs must stay the same as volume increases. 3.The market must be highly price sensitive. 4.None of the above

9. Chapter 11- slide 9 Copyright © 2010 Pearson Education, Inc. Publishing as Prentice Hall In order for market-penetration pricing to work, which of the following market conditions must be met? 1.The market must not be price sensitive. 2.Production and distribution costs must stay the same as volume increases. 3.The market must be highly price sensitive. 4.None of the above

10. Chapter 11- slide 10 Copyright © 2010 Pearson Education, Inc. Publishing as Prentice Hall Product Mix Pricing Strategies Pricing Strategies Product line pricing Optional- product pricing Captive- product pricing By-product pricing Product bundle pricing

11. Chapter 11- slide 11 Copyright © 2010 Pearson Education, Inc. Publishing as Prentice Hall Product Mix Pricing Strategies Product line pricing takes into account the cost differences between products in the line, customer evaluation of their features, and competitors’ prices Optional-product pricing takes into account optional or accessory products along with the main product Pricing Strategies

12. Chapter 11- slide 12 Copyright © 2010 Pearson Education, Inc. Publishing as Prentice Hall Product Mix Pricing Strategies Captive-product pricing involves products that must be used along with the main product Two-part pricing involves breaking the price into: –Fixed fee –Variable usage fee Pricing Strategies

13. Chapter 11- slide 13 Copyright © 2010 Pearson Education, Inc. Publishing as Prentice Hall Price Mix Pricing Strategies By-product pricing refers to products with little or no value produced as a result of the main product. Producers will seek little or no profit other than the cost to cover storage and delivery. Pricing Strategies

14. Chapter 11- slide 14 Copyright © 2010 Pearson Education, Inc. Publishing as Prentice Hall Price Mix Pricing Strategies Product bundle pricing combines several products at a reduced price Pricing Strategies

15. Chapter 11- slide 15 Copyright © 2010 Pearson Education, Inc. Publishing as Prentice Hall Setting price steps between product lines is called ________ pricing. 1.by-product 2.product line 3.product-step 4.price-skimming

16. Chapter 11- slide 16 Copyright © 2010 Pearson Education, Inc. Publishing as Prentice Hall Setting price steps between product lines is called ________ pricing. 1.by-product 2.product line 3.product-step 4.price-skimming

17. Chapter 11- slide 17 Copyright © 2010 Pearson Education, Inc. Publishing as Prentice Hall When a company offers to sell optional or accessory products along with its main product, this practice is referred to as ________. 1.by-product pricing 2.product line pricing 3.optional-product pricing 4.price-skimming pricing

18. Chapter 11- slide 18 Copyright © 2010 Pearson Education, Inc. Publishing as Prentice Hall When a company offers to sell optional or accessory products along with its main product, this practice is referred to as ________. 1.by-product pricing 2.product line pricing 3.optional-product pricing 4.price-skimming pricing

19. Chapter 11- slide 19 Copyright © 2010 Pearson Education, Inc. Publishing as Prentice Hall Ordering the #3 meal at a fast food restaurant is using the ________ pricing method. 1.by-product 2.captive-product 3.product line 4.product bundle

20. Chapter 11- slide 20 Copyright © 2010 Pearson Education, Inc. Publishing as Prentice Hall Ordering the #3 meal at a fast food restaurant is using the ________ pricing method. 1.by-product 2.captive-product 3.product line 4.product bundle

21. Chapter 11- slide 21 Copyright © 2010 Pearson Education, Inc. Publishing as Prentice Hall Because of ________ pricing, Sony’s PlayStation games generate more than a third of the company’s profits. 1.by-product 2.product line 3.optional-product 4.captive-product

22. Chapter 11- slide 22 Copyright © 2010 Pearson Education, Inc. Publishing as Prentice Hall Because of ________ pricing, Sony’s PlayStation games generate more than a third of the company’s profits. 1.by-product 2.product line 3.optional-product 4.captive-product

23. Chapter 11- slide 23 Copyright © 2010 Pearson Education, Inc. Publishing as Prentice Hall Price-Adjustment Strategies Discount and allowance pricing Segmented pricing Psychological pricing Promotional pricing Geographic pricing Dynamic pricing International pricing

24. Chapter 11- slide 24 Copyright © 2010 Pearson Education, Inc. Publishing as Prentice Hall Price-Adjustment Strategies Discount and allowance pricing reduces prices to reward customer responses such as paying early or promoting the product Discounts Allowances Pricing Strategies

25. Chapter 11- slide 25 Copyright © 2010 Pearson Education, Inc. Publishing as Prentice Hall A reduction given to buyers who pay their bills promptly, such as “2/10, net 30,” is called a ________ discount. 1.cash 2.prepay 3.trade 4.buyer

26. Chapter 11- slide 26 Copyright © 2010 Pearson Education, Inc. Publishing as Prentice Hall A reduction given to buyers who pay their bills promptly, such as “2/10, net 30,” is called a ________ discount. 1.cash 2.prepay 3.trade 4.buyer

27. Chapter 11- slide 27 Copyright © 2010 Pearson Education, Inc. Publishing as Prentice Hall ________ discounts are often given to retailers in order to encourage early ordering in anticipation of heavy selling seasons. 1.Functional 2.Reseller 3.Seasonal 4.Quantity

28. Chapter 11- slide 28 Copyright © 2010 Pearson Education, Inc. Publishing as Prentice Hall ________ discounts are often given to retailers in order to encourage early ordering in anticipation of heavy selling seasons. 1.Functional 2.Reseller 3.Seasonal 4.Quantity

29. Chapter 11- slide 29 Copyright © 2010 Pearson Education, Inc. Publishing as Prentice Hall Marketers who purchase large quantities of products at the same time may receive a ________ discount. 1.cash 2.reseller 3.rebate 4.quantity

30. Chapter 11- slide 30 Copyright © 2010 Pearson Education, Inc. Publishing as Prentice Hall Marketers who purchase large quantities of products at the same time may receive a ________ discount. 1.cash 2.reseller 3.rebate 4.quantity

31. Chapter 11- slide 31 Copyright © 2010 Pearson Education, Inc. Publishing as Prentice Hall Price-Adjustment Strategies Segmented pricing is used when a company sells a product at two or more prices even though the difference is not based on cost Pricing Strategies

32. Chapter 11- slide 32 Copyright © 2010 Pearson Education, Inc. Publishing as Prentice Hall Which of the following is not an example of segmented pricing? 1.Customer segment 2.Time 3.Location 4.Sales promotion

33. Chapter 11- slide 33 Copyright © 2010 Pearson Education, Inc. Publishing as Prentice Hall Which of the following is not an example of segmented pricing? 1.Customer segment 2.Time 3.Location 4.Sales promotion

34. Chapter 11- slide 34 Copyright © 2010 Pearson Education, Inc. Publishing as Prentice Hall Price-Adjustment Strategies To be effective: Market must be segmentable Segments must show different degrees of demand Watching the market cannot exceed the extra revenue obtained from the price difference Must be legal Pricing Strategies Segmented Pricing

35. Chapter 11- slide 35 Copyright © 2010 Pearson Education, Inc. Publishing as Prentice Hall Price-Adjustment Strategies Psychological pricing occurs when sellers consider the psychology of prices and not simply the economics Reference prices are prices that buyers carry in their minds and refer to when looking at a given product –Noting current prices –Remembering past prices –Assessing the buying situations Pricing Strategies

36. Chapter 11- slide 36 Copyright © 2010 Pearson Education, Inc. Publishing as Prentice Hall Price-Adjustment Strategies Promotional pricing is when prices are temporarily priced below list price or cost to increase demand Loss leaders Special event pricing Cash rebates Low-interest financing Longer warrantees Free maintenance Pricing Strategies

37. Chapter 11- slide 37 Copyright © 2010 Pearson Education, Inc. Publishing as Prentice Hall Price-Adjustment Strategies Risks of promotional pricing Used too frequently, and copies by competitors can create “deal-prone” customers who will wait for promotions and avoid buying at regular price Creates price wars Pricing Strategies

38. Chapter 11- slide 38 Copyright © 2010 Pearson Education, Inc. Publishing as Prentice Hall Price-Adjustment Strategies Geographical pricing is used for customers in different parts of the country or the world FOB pricing Uniformed-delivery pricing Zone pricing Basing-point pricing Freight-absorption pricing Pricing Strategies

39. Chapter 11- slide 39 Copyright © 2010 Pearson Education, Inc. Publishing as Prentice Hall Price-Adjustment Strategies FOB (free on board) pricing means that the goods are delivered to the carrier and the title and responsibility passes to the customer Uniformed-delivery pricing means the company charges the same price plus freight to all customers, regardless of location Pricing Strategies

40. Chapter 11- slide 40 Copyright © 2010 Pearson Education, Inc. Publishing as Prentice Hall Price Adjustment Strategies Zone pricing means that the company sets up two or more zones where customers within a given zone pay a single total price Basing-point pricing means that a seller selects a given city as a “basing point” and charges all customers the freight cost associated from that city to the customer location, regardless of the city from which the goods are actually shipped Pricing Strategies

41. Chapter 11- slide 41 Copyright © 2010 Pearson Education, Inc. Publishing as Prentice Hall Price-Adjustment Strategies Freight-absorption pricing means the seller absorbs all or part of the actual freight charge as an incentive to attract business in competitive markets Pricing Strategies

42. Chapter 11- slide 42 Copyright © 2010 Pearson Education, Inc. Publishing as Prentice Hall Price-Adjustment Strategies Dynamic pricing is when prices are adjusted continually to meet the characteristics and needs of the individual customer and situations Pricing Strategies

43. Chapter 11- slide 43 Copyright © 2010 Pearson Education, Inc. Publishing as Prentice Hall Dynamic pricing is often practiced by which of the following? 1.Airlines 2.Restaurants 3.Hotels 4.All of the above

44. Chapter 11- slide 44 Copyright © 2010 Pearson Education, Inc. Publishing as Prentice Hall Dynamic pricing is often practiced by which of the following? 1.Airlines 2.Restaurants 3.Hotels 4.All of the above

45. Chapter 11- slide 45 Copyright © 2010 Pearson Education, Inc. Publishing as Prentice Hall Price-Adjustment Strategies International pricing is when prices are set in a specific country based on country-specific factors Economic conditions Competitive conditions Laws and regulations Infrastructure Company marketing objective Pricing Strategies

46. Chapter 11- slide 46 Copyright © 2010 Pearson Education, Inc. Publishing as Prentice Hall Price Changes Price cuts Price increases Initiating Pricing Changes

47. Chapter 11- slide 47 Copyright © 2010 Pearson Education, Inc. Publishing as Prentice Hall ________ pricing is used for market penetration and to hold on to increasingly competitive markets. 1.FOB-origin 2.Uniform-delivered 3.Basing-point 4.Freight-absorption

48. Chapter 11- slide 48 Copyright © 2010 Pearson Education, Inc. Publishing as Prentice Hall ________ pricing is used for market penetration and to hold on to increasingly competitive markets. 1.FOB-origin 2.Uniform-delivered 3.Basing-point 4.Freight-absorption

49. Chapter 11- slide 49 Copyright © 2010 Pearson Education, Inc. Publishing as Prentice Hall If your customers usually perceive higher price products as having higher quality, you would consider using _________ pricing. 1.psychological 2.emotional 3.rational 4.cost-based

50. Chapter 11- slide 50 Copyright © 2010 Pearson Education, Inc. Publishing as Prentice Hall If your customers usually perceive higher price products as having higher quality, you would consider using _________ pricing. 1.psychological 2.emotional 3.rational 4.cost-based

51. Chapter 11- slide 51 Copyright © 2010 Pearson Education, Inc. Publishing as Prentice Hall Temporarily pricing your product below list price or even below cost is called ________ pricing. 1.blue light 2.retail 3.promotional 4.psychological

52. Chapter 11- slide 52 Copyright © 2010 Pearson Education, Inc. Publishing as Prentice Hall Temporarily pricing your product below list price or even below cost is called ________ pricing. 1.blue light 2.retail 3.promotional 4.psychological

53. Chapter 11- slide 53 Copyright © 2010 Pearson Education, Inc. Publishing as Prentice Hall Which of the following is not a price adjustment strategy? 1.Psychological 2.Dynamic 3.Geographic 4.Domestic

54. Chapter 11- slide 54 Copyright © 2010 Pearson Education, Inc. Publishing as Prentice Hall Which of the following is not a price adjustment strategy? 1.Psychological 2.Dynamic 3.Geographic 4.Domestic

55. Chapter 11- slide 55 Copyright © 2010 Pearson Education, Inc. Publishing as Prentice Hall Price Changes Initiating Pricing Changes Price cuts occur due to: Excess capacity Increased market share Price increase from: Cost inflation Increased demand Lack of supply

56. Chapter 11- slide 56 Copyright © 2010 Pearson Education, Inc. Publishing as Prentice Hall Which of the following is a reason for a firm to consider a price cut? 1.The firm has excess capacity. 2.The firm has falling market share due to price competition. 3.The firm wants to dominate the market through lower costs. 4.All of the above

57. Chapter 11- slide 57 Copyright © 2010 Pearson Education, Inc. Publishing as Prentice Hall Which of the following is a reason for a firm to consider a price cut? 1.The firm has excess capacity. 2.The firm has falling market share due to price competition. 3.The firm wants to dominate the market through lower costs. 4.All of the above

58. Chapter 11- slide 58 Copyright © 2010 Pearson Education, Inc. Publishing as Prentice Hall Price Changes Price increases Product is “hot” Company greed Price cuts New models will be available Models are not selling well Quality issues Buyer Reactions to Pricing Changes

59. Chapter 11- slide 59 Copyright © 2010 Pearson Education, Inc. Publishing as Prentice Hall Price Changes Questions –Why did the competitor change the price? –Is the price cut permanent or temporary? –What is the effect on market share and profits? –Will competitors respond? Responding to Price Changes

60. Chapter 11- slide 60 Copyright © 2010 Pearson Education, Inc. Publishing as Prentice Hall Price Changes Solutions –Reduce price to match competition –Maintain price but raise the perceived value through communications –Improve quality and increase price –Launch a lower-price “fighting” brand Responding to Price Changes

61. Chapter 11- slide 61 Copyright © 2010 Pearson Education, Inc. Publishing as Prentice Hall Price Changes Responding to Price Changes

62. Chapter 11- slide 62 Copyright © 2010 Pearson Education, Inc. Publishing as Prentice Hall Public Policy and Pricing Price fixing: Sellers must set prices without talking to competitors Predatory pricing: Selling below cost with the intention of punishing a competitor or gaining higher long-term profits by putting competitors out of business Pricing Within Channel Levels

63. Chapter 11- slide 63 Copyright © 2010 Pearson Education, Inc. Publishing as Prentice Hall Public Policy and Pricing Robinson-Patman Act prevents unfair price discrimination by ensuring that the seller offer the same price terms to customers at a given level of trade Pricing Across Channel Levels

64. Chapter 11- slide 64 Copyright © 2010 Pearson Education, Inc. Publishing as Prentice Hall Public Policy and Pricing Robinson-Patman Act Price discrimination is allowed: –If the seller can prove that costs differ when selling to different retailers –If the seller manufactures different qualities of the same product for different retailers Pricing Across Channel Levels

65. Chapter 11- slide 65 Copyright © 2010 Pearson Education, Inc. Publishing as Prentice Hall Public Policy and Pricing Retail (or resale) price maintenance is when a manufacturer requires a dealer to charge a specific retail price for its products Pricing Across Channel Levels

66. Chapter 11- slide 66 Copyright © 2010 Pearson Education, Inc. Publishing as Prentice Hall Public Policy and Pricing Deceptive pricing occurs when a seller states prices or price savings that mislead consumers or are not actually available to consumers Scanner fraud failure of the seller to enter current or sale prices into the computer system Price confusion results when firms employ pricing methods that make it difficult for consumers to understand what price they are really paying Pricing Across Channel Levels

67. Chapter 11- slide 67 Copyright © 2010 Pearson Education, Inc. Publishing as Prentice Hall The ________ seeks to prevent unfair price discrimination by ensuring that sellers offer the same price to customers at a given level of trade. 1.Anderson-Lieberman Act 2.Robinson-Patman Act 3.Sherman Act 4.Clayton Act

68. Chapter 11- slide 68 Copyright © 2010 Pearson Education, Inc. Publishing as Prentice Hall The ________ seeks to prevent unfair price discrimination by ensuring that sellers offer the same price to customers at a given level of trade. 1.Anderson-Lieberman Act 2.Robinson-Patman Act 3.Sherman Act 4.Clayton Act

69. Chapter 11- slide 69 Copyright © 2010 Pearson Education, Inc. Publishing as Prentice Hall All rights reserved. No part of this publication may be reproduced, stored in a retrieval system, or transmitted, in any form or by any means, electronic, mechanical, photocopying, recording, or otherwise, without the prior written permission of the publisher. Printed in the United States of America. Copyright © 2010 Pearson Education, Inc. Copyright © 2010 Pearson Education, Inc. Publishing as Prentice Hall