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Chapter Twenty. Pricing Strategies and Tactics. Objectives. Identify various pricing strategies Discuss differential pricing strategies Describe skimming and penetration pricing Demonstrate competition’s effect on pricing Discuss inflation’s effect on pricing

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chapter twenty

Chapter Twenty

Pricing Strategies and Tactics

objectives
Objectives
  • Identify various pricing strategies
  • Discuss differential pricing strategies
  • Describe skimming and penetration pricing
  • Demonstrate competition’s effect on pricing
  • Discuss inflation’s effect on pricing
  • Discuss product-line pricing strategies
  • Explore psychological aspects of price
  • Demonstrate geography’s influence on pricing
  • Discuss varied pricing tools
  • Overview legal restrictions on pricing
  • Identify a major ethical issue related to price
pricing strategies
Pricing Strategies
  • Differential pricing strategies
  • Competitive pricing strategies
  • Product-line pricing strategies
  • Psychological and image pricing strategies
  • Distribution-based pricing strategies
slide4

Differential pricing strategies

$24.95

  • Different buyers pay different prices

$22.00

100 units for $2,000

155 Russian rubles each

differential pricing strategies

$24.95

$22.00

100 units for $2,000

155 Russian rubles each

Differential Pricing Strategies

Types:

  • Variable Pricing
  • Second-Market Discounting
  • Skimming
  • Periodic discounting
  • Random discounting
competitive pricing strategies
Competitive Pricing Strategies
  • Meeting competition
  • Undercutting competition

Types:

  • Price leadership
  • Follow the leader
  • Penetration pricing
  • Predatory pricing
  • Traditional
  • Inflationary
slide8

Penetration Pricing

  • Low introductory price to establish product quickly in market
  • When to use:
  • Elastic demand
  • Economies of scale
  • Threat of strong competition
product line pricing strategies

Captive pricing

Leader and Bait pricing

Price lining

Price-bundling & Multi-unit

$45.99

$39.99

$19.99

$24.99

Product-Line PricingStrategies
psychological image pricing

$1.87$4.95$9.99

Reference Pricing

Prestige Pricing

Regular price: $45

Now Only: $25

$175 $1000

Odd/Even Pricing

Psychological & Image Pricing
distribution based pricing

X

X

Distribution-Based Pricing
  • F.O.B
  • Delivered
    • Zone
    • Uniform
  • Basing-point
markups

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

Markups
establishing exact prices

Markup on

Selling Price

and on Cost

Cost-Plus

Method

Break-even

Analysis

Target Return

Pricing

Average

Cost

Establishing Exact Prices
establishing exact prices14

Amount added on

------------------------

Selling price

= % markup

Establishing Exact Prices

Markup on Selling Price or Costs:

Cost-Plus Method:

Cost + Amount added on = Price

slide15

Fixed costs + Target return

-------------------------------------- =

Units to be sold

All costs

------------------------ =

# Units produced

Average cost

of a single unit

Price

per unit

Establishing Exact Prices

Average-cost method:

Target Return Pricing:

slide16

Total Revenues

Profit

Profit

Total Costs

Loss

Cost &Revenue ($)

Break-

even

point

Fixed Costs

Loss

Units produced & sold

Break-Even Analysis

price adjustments
Price Adjustments
  • Cash discounts
  • Trade discounts
  • Quantity discounts
  • Seasonal discounts
  • Chain discounts
  • Promotional allowances
slide18

Pricing and the Law

ROBINSON-PATMAN ACT OF 1936

Discriminatory prices illegal unless….

  • Charged to meet competition
  • Justified by cost savings
slide19

Pricing and the Law

Fair Trade Practices Act and their repeal in 1975

  • States: manufacturers may fix final selling price
  • Federal gov’t: illegal if good sold in different state
slide20

Pricing and Ethical issues

Are corporate social policy and corporate profit motive compatible?

review
Review
  • Identify various pricing strategies
  • Discuss differential pricing strategies
  • Describe skimming and penetration pricing
  • Demonstrate competition’s effect on pricing
  • Discuss inflation’s effect on pricing
  • Discuss product-line pricing strategies
  • Explore psychological aspects of price
  • Demonstrate geography’s influence on pricing
  • Discuss varied pricing tools
  • Overview legal restrictions on pricing
  • Identify a major ethical issue related to price
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