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Some Facets of Pricing

Some Facets of Pricing. Why your tank of gas leaves you less upset these days Is your cup of coffee a ‘rip off’? Can’t we find the best bargains at auctions? Why does my bag of chips have more air in it?. What We Will Discuss Today. ?. Factors Affecting Prices Company factors

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Some Facets of Pricing

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  1. Some Facets of Pricing • Why your tank of gas leaves you less upset these days • Is your cup of coffee a ‘rip off’? • Can’t we find the best bargains at auctions? • Why does my bag of chips have more air in it?

  2. What We Will Discuss Today ? • Factors Affecting Prices • Company factors • Consumer factors • Competitive factors • Pricing Approaches • Cost-based • Consumer-based • Competitor based

  3. Internal (Company) Factors 1 • Goals • Survival • Current Profit Maximization • Market-Share Leadership • Product-Quality Leadership • Marketing Mix Strategy pricing decisions must be coordinated with other marketing mix variables • Costs

  4. Internal Factors 2 • Costs • Variable Costs • economies of scale • experience curve • Fixed Costs

  5. External (Demand) Factors • Market Structure • Pure competition: Price = Marginal costs • Monopolistic competition: Price = Range • Oligopolistic competition: Price based on competitors’ prices • Pure monopoly: Price = ?? • Economics view • Reality • Consumer Perceptions of Value • Price Elasticity of Demand

  6. What is an unFair Price?

  7. Consumer Perceptions of Price and Value • Reference Price • Assymetry of Losses and Gains • ‘Fair’ and ‘Unfair’ Prices

  8. Pricing Perception Issues • Odd versus even prices • Is $1.99 cheaper than $2.00? • Why is tax not included in the price?

  9. Pricing Approaches • Cost-Based Pricing • Cost-plus pricing • Break even analysis • Target profit pricing • Buyer-Based Pricing • Perceived value • Competition-Based Pricing

  10. Competition • Bidding • Sealed bidding: chance of obtaining contract versus price • Open bidding: auctions • Competitive Reactions • hostile • cooperative • nature of the market?

  11. Price/Quality Strategies Price Superb Value Strategy Premium Strategy High-value Strategy Quality Overcharging Strategy Medium-value Strategy Good Value Strategy Rip-off Strategy False Economy Strategy Economy Strategy

  12. A Geography Question • Should we charge the same price to a customer in New York City as we do to a customer in Long Beach?

  13. Geographic Pricing 1 • FOB (free-on-board)Origin Pricing • goods are placed free on board carrier upon which title passes to customer

  14. Geographic Pricing 2 • Uniform Delivered Pricing • same price plus freight anywhere in U.S. • Zone Pricing

  15. Discounts • Why discount? • How do we discount?

  16. Timing of Discounts

  17. Timing of Discounts • seasonal discounts • PLC discounting • random discounting

  18. Types of Discounts 1 • price discrimination • customer segment • product form: the expensive sheep bladder vitamin • image pricing • Loss Leader Discounts

  19. Types of Discounts 2 • Psychological discounts: “was $359, now $299.” • Coupons • Cash Rebates

  20. A Typology of Customers and Strategies Price Sensitivity High Low High Time Sensitivity EDLP Focus on Convenience Focus on List Prices, Quality Low Coupons

  21. How to Increase Prices? • The “List Price” • How much to increase prices? • gradually: JNDs • all at once • Decrease product size or quantity: the shrinking candy bar

  22. What We Discussed Today • Factors Affecting Prices • Company factors • Consumer factors • Competitive factors • Pricing Approaches • Cost-based • Consumer-based • Competitor based

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