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Designed by Eric Brengle B-books, Ltd.

10. Marketing Lamb, Hair, McDaniel. Designed by Eric Brengle B-books, Ltd. Prepared by Amit Shah Frostburg State University. Setting the Right Price. CHAPTER 20. Establish pricing goals. Estimate demand, costs, and profits. Choose a price strategy.

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Designed by Eric Brengle B-books, Ltd.

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  1. 10 MarketingLamb, Hair, McDaniel Designed by Eric Brengle B-books, Ltd. Prepared by Amit Shah Frostburg State University Setting the Right Price CHAPTER 20

  2. Establish pricing goals Estimate demand, costs, and profits Choose a price strategy Fine tune with pricing tactics Results lead to the right price LOI How to Set a Price on aProduct or Service

  3. Profit-Oriented Sales-Oriented Status Quo Establish Pricing Goals LOI

  4. A firm charges a high introductory price, often coupled with heavy promotion. Price Skimming A firm charges a relatively low price for a product initially as a way to reach the mass market. Penetration Pricing Status Quo Pricing Charging a price identical to orvery close to the competition’s price. Choose a Price Strategy LOI

  5. LOI Inelastic Demand Situations When Price Skimming Is Successful Unique Advantages/Superior Legal Protection of Product Technological Breakthrough Blocked Entry to Competitors Price Skimming

  6. Advantages Disadvantages http://www.iflyswa.com Online Penetration Pricing LOI • Requires gear up for mass production • Selling large volumes at low prices • Strategy to gain market share may fail • Discourages or blocks competition from market entry • Boosts sales and provides large profit increases • Can justify production expansion

  7. Advantages Disadvantages Status Quo Pricing LOI • Simplicity • Safest route to long-term survival for small firms • Strategy may ignore demand and/or cost

  8. The Legality and Ethics ofPrice Strategy LO2 Unfair TradePractices Laws that prohibit wholesalers and retailers from selling below cost. Price Fixing An agreement between two or more firms on the price they will charge for a product.

  9. LO2 Price Discrimination The Robinson-Patman Act of 1936: There must be price discrimination. Transaction must occur in interstate commerce. Seller must discriminate by price among two or more purchasers. Products sold must be commodities or tangible goods. Products sold must be of like grade and quality. There must be significant competitive injury.

  10. Predatory Pricing Predatory Pricing LO2 The practice of charging a very low price for a product with the intent of driving competitors out of business or out of a market.

  11. Discounts Geographic pricing Special pricing tactics LO3 Tactics for Fine-Tuning the Base Price

  12. Quantity Discounts Promotional Allowances Cash Discounts Rebates Functional Discounts Zero Percent Financing Seasonal Discounts Value-Based Pricing Discounts, Allowances, Rebates, andValue-Based Pricing LO3 Markdown Money

  13. Value-BasedPricing Value-Based Pricing LO3 Setting the price at a level that seems to the customer to be a good price compared to the prices of other options.

  14. Pricing Products Too Low Managers attempt to buy market share through aggressive pricing. Managers tend to make pricing decisions based on short-term (current costs, current competitor prices, and short-term share gains) rather than on long-term profitability. LO3

  15. Single-Price Tactic All goods offered at the same price Flexible Pricing Different customers pay different price Professional Services Pricing Used by professionals with experience, training or certification Price Lining Several line items at specific price points Leader Pricing Sell product at near or below cost Bait Pricing Lure customers through false or misleading price advertising Odd-Even Pricing Odd-number prices imply bargain Even-number prices imply quality Price Bundling Combining two or more products in a single package Two-Part Pricing Two separate charges to consume a single good Other Pricing Tactics LO3

  16. Pricing during Difficult Economic Times LO5 Describe the role of pricing during periods of inflation and recession

  17. High Inflation Cost-Oriented Tactics Demand-Oriented Tactics LO5 Inflation

  18. Cost-Oriented Tactics • Problems with Cost-Oriented Tactics • A high volume of sales on an item with a low profit margin may still make the item highly profitable. • Eliminating a product may reduce economies of scale. • Eliminating a product may affect the price-quality image of the entire line. LO5

  19. Cultivate selected demand Create unique offerings Strategies to Make Demand More Inelastic Change the package design Heighten buyer dependence Demand-Oriented Tactics LO5

  20. LO5 Recession Value-Based Pricing Bundling or Unbundling

  21. Renegotiating contracts Offering help Keeping the pressure on Paring down suppliers Supplier Strategies During Recession LO5

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