1. Pricing Strategies and Tactics Chapter Seventeen

2. Objectives bIdentify various pricing strategies bDiscuss differential pricing strategies bDescribe skimming and penetration pricing bDemonstrate competition’s effect on pricing bDiscuss inflation’s effect on pricing bDiscuss product-line pricing strategies bExplore psychological aspects of price bDemonstrate geography’s influence on pricing bDiscuss varied pricing tools bOverview legal restrictions on pricing bIdentify a major ethical issue related to price

3. Pricing Strategies bDifferential pricing strategies bCompetitive pricing strategies bProduct-line pricing strategies bPsychological and image pricing strategies bDistribution-based pricing strategies bDifferential pricing strategies bCompetitive pricing strategies bProduct-line pricing strategies bPsychological and image pricing strategies bDistribution-based pricing strategies

4. Differential pricing strategies bDifferent buyers pay different prices $24.95 $22.00 100 units for $2,000 155 Russian rubles each

5. Differential Pricing Strategies Types: bVariable Pricing bSecond-Market Discounting bSkimming bPeriodic discounting bRandom discounting Types: bVariable Pricing bSecond-Market Discounting bSkimming bPeriodic discounting bRandom discounting $24.95 $22.00 100 units for $2,000 155 Russian rubles each

6. Price Skimming l Pricing high, usually at the beginning of a product’s life Examples: l personal computers l CDs l electronics

7. Competitive Pricing Strategies bMeeting competition bUndercutting competition bMeeting competition bUndercutting competition Types: bPrice leadership bFollow the leader bPrice leadership bFollow the leader bPenetration pricing bPredatory pricing bTraditional bInflationary bPenetration pricing bPredatory pricing bTraditional bInflationary

8. Penetration Pricing l Low introductory price to establish product quickly in market When to use: l Elastic demand l Economies of scale l Threat of strong competition l Mass market l Low introductory price to establish product quickly in market When to use: l Elastic demand l Economies of scale l Threat of strong competition l Mass market

9. Product-Line Pricing Strategies Captive pricingLeader and Bait pricingPrice lining $45.99 $39.99 $24.99 $19.99 Price-bundling & Multi-unit

10. Psychological & Image Pricing Regular price: $45 Now Only: $25 Reference Pricing Odd/Even Pricing $1.87 $4.95 $9.99 $175 $1000 Prestige Pricing

11. Distribution-Based Pricing bF.O.B bDelivered bZone bUniform bBasing-point X X

12. MarkupsMarkups Manufacturer Cost$20.00 20% markup$ 5.00 Selling price$25.00 Wholesaler Cost$25.00 15% markup$ 4.41 Selling price$29.41 Retailer Cost$29.41 41% markup$20.59 Selling price$50.00

13. Establishing Exact Prices Markup on Selling Price and on Cost Cost-PlusMethod Break-evenAnalysis Target Return Pricing AverageCost

14. Establishing Exact Prices Markup on Selling Price or Costs: = % markup Amount added on ------------------------ Selling price Cost + Amount added on = Price Cost-Plus Method:

15. Average-cost method: All costs ------------------------ = # Units produced Average cost of a single unit Establishing Exact Prices Target Return Pricing: Fixed costs + Target return -------------------------------------- = Units to be sold Price per unit

16. Loss Loss Profit Profit Break-evenpoint Units produced & sold Cost &Revenue ($) Total Revenues Total Costs Fixed Costs Break-Even Analysis

17. Price Adjustments bCash discounts bTrade discounts bQuantity discounts bSeasonal discounts bChain discounts bPromotional allowances bCash discounts bTrade discounts bQuantity discounts bSeasonal discounts bChain discounts bPromotional allowances

18. Pricing and the Law ROBINSON-PATMAN ACT OF 1936 Discriminatory prices illegal unless…. bCharged to meet competition bJustified by cost savings

19. Pricing and the Law Fair Trade Practices Act and their repeal in 1975 bStates: manufacturers may fix final selling price bFederal gov’t: illegal if good sold in different state

20. Pricing and Ethical issues Are corporate social policy and corporate profit motive compatible?

21. Review bIdentify various pricing strategies bDiscuss differential pricing strategies bDescribe skimming and penetration pricing bDemonstrate competition’s effect on pricing bDiscuss inflation’s effect on pricing bDiscuss product-line pricing strategies bExplore psychological aspects of price bDemonstrate geography’s influence on pricing bDiscuss varied pricing tools bOverview legal restrictions on pricing bIdentify a major ethical issue related to price