pricing strategies and determination n.
Download
Skip this Video
Loading SlideShow in 5 Seconds..
Pricing Strategies and Determination PowerPoint Presentation
Download Presentation
Pricing Strategies and Determination

Loading in 2 Seconds...

play fullscreen
1 / 50

Pricing Strategies and Determination - PowerPoint PPT Presentation


  • 329 Views
  • Uploaded on

Pricing Strategies and Determination. chapter 14. Harcourt, Inc. Objectives. Explain pricing factors Compare and contrast cost-based pricing methods Identify strategic concerns important in pricing decisions. Objectives. Evaluate reasons why base prices change over time

loader
I am the owner, or an agent authorized to act on behalf of the owner, of the copyrighted work described.
capcha
Download Presentation

PowerPoint Slideshow about 'Pricing Strategies and Determination' - chauncey


An Image/Link below is provided (as is) to download presentation

Download Policy: Content on the Website is provided to you AS IS for your information and personal use and may not be sold / licensed / shared on other websites without getting consent from its author.While downloading, if for some reason you are not able to download a presentation, the publisher may have deleted the file from their server.


- - - - - - - - - - - - - - - - - - - - - - - - - - E N D - - - - - - - - - - - - - - - - - - - - - - - - - -
Presentation Transcript
pricing strategies and determination

Pricing Strategies and Determination

chapter 14

Harcourt, Inc.

objectives
Objectives
  • Explain pricing factors
  • Compare and contrast cost-based pricing methods
  • Identify strategic concerns important in pricing decisions

Dr. Rosenbloom

objectives1
Objectives
  • Evaluate reasons why base prices change over time
  • Understand new technology implications for pricing behavior, especially price customization

Dr. Rosenbloom

what is price
What is Price?
  • Price is the sacrifice that one party pays another to receive something in exchange
  • For our case, price is a monetary value charged by an organization for the sales of its products

Dr. Rosenbloom

pricing
Pricing

Fairfield Inns

The Martin Agency

Dr. Rosenbloom

pricing1
Pricing

Alamo Car Rental

Hal Riney and Partners

Dr. Rosenbloom

determining the base price
Determining the Base Price
  • Cost-Plus Pricing
    • Easiest, Often misleading
    • A simple allocation of fixed and variable costs
    • Standard mark-up - a standard profit margin
    • Target return pricing - a standard amount of profit per item
    • Ignores demand (price sensitivity) and fails to account for competition

Dr. Rosenbloom

determining the base price1
Determining the Base Price
  • Demand Pricing
    • Based on the elasticity of demand
      • Higher prices are favored with inelastic
        • Price increases offset volume losses
      • Lower prices are favored with elastic
        • Volume increases offset price reductions
      • Consumers are indifferent with unitary demand
    • Breakeven analysis
    • Demand schedules

Dr. Rosenbloom

determining the base price2
Determining the Base Price
  • Demand Pricing
    • Profit-Maximization
      • Calculate the profit at each price point on a demand curve and choose the highest
      • In other words, which price produces the highest total contribution
      • Verified by observing marginal revenue and cost figures

Dr. Rosenbloom

determining the base price3
Determining the Base Price
  • Demand Pricing
    • Where does demand information come from?
      • Analytic modeling
      • Experiments
      • Customer surveys
      • Managerial judgement

Dr. Rosenbloom

determining the base price4
Determining the Base Price

Strategic Pricing Concerns

Ethical Concerns

Legal Concerns

Low cost focus

Differentiation focus

price

unique

Competitive Strategy Positioning Continuum

Dr. Rosenbloom

determining the base price5
Determining the Base Price

Strategic Pricing Concerns

Ethical Concerns

Legal Concerns

Low cost focus

Differentiation focus

price

unique

Dr. Rosenbloom

Competitive Strategy Positioning Continuum

determining the base price6
Determining the Base Price

Strategic Pricing Concerns

Ethical Concerns

Legal Concerns

Low cost focus

Differentiation focus

price

unique

Dr. Rosenbloom

Competitive Strategy Positioning Continuum

determining the base price7
Determining the Base Price

Strategic Pricing Concerns

Ethical Concerns

Legal Concerns

  • Objectives
    • Goal-setting/Objective-setting
    • Pricing to achieve a target ROI
    • Pricing to stabilize price and margin
    • Pricing to reach a target market share
    • Pricing to meet or prevent competition
    • Pricing for profit maximization
    • Pricing for survival

Dr. Rosenbloom

determining the base price8
Determining the Base Price

Strategic Pricing Concerns

Ethical Concerns

Legal Concerns

Penetration Pricing Strategy

  • New product pricing
    • Skimming Vs. Penetration

Skimming Pricing Strategy

Decline

Maturity

Growth

Introduction

Dr. Rosenbloom

determining the base price9
Determining the Base Price

Legal Concerns

Ethical Concerns

Strategic Pricing Concerns

  • High initial price for quick ROI
  • Inelastic demand
  • Price insensitivity by the market

Penetration Pricing Strategy

Skimming Pricing Strategy

Decline

Maturity

Growth

Introduction

Dr. Rosenbloom

determining the base price10
Determining the Base Price

Legal Concerns

Ethical Concerns

Strategic Pricing Concerns

  • Low initial price with elastic demand
  • Volume for lower production costs
  • Imminent competition

Skimming Pricing Strategy

Penetration Pricing Strategy

Decline

Maturity

Growth

Introduction

Dr. Rosenbloom

determining the base price11
Determining the Base Price

Strategic Pricing Concerns

Ethical Concerns

Legal Concerns

  • Price-Quality judgements
    • Customers uncertain about brand quality prior to purchase look to price
    • Customers look to price in high risk purchases

Dr. Rosenbloom

determining the base price12
Determining the Base Price

Strategic Pricing Concerns

Ethical Concerns

Legal Concerns

  • Price Fixing
    • Violation of Sherman Anti-Trust Act
    • Conspiring to restrain trade

Dr. Rosenbloom

determining the base price13
Determining the Base Price

Strategic Pricing Concerns

Ethical Concerns

Legal Concerns

  • Price Discrimination
    • Violation of Robinson-Patman Act
    • Illegal only when business to business
      • Exception for cost justification
      • Exception for competitor price matching
      • Exception for no apparent harm to competition

Dr. Rosenbloom

determining the base price14
Determining the Base Price

Strategic Pricing Concerns

Ethical Concerns

Legal Concerns

  • Resale Price Maintenance
    • When a manufacturer and retailer agree on a minimum price to be charged to consumers at retail
      • Manufacturers can set suggested prices (MSRP)
      • Legal to stop selling to retailers who ignore MSRP

Dr. Rosenbloom

determining the base price15
Determining the Base Price

Strategic Pricing Concerns

Ethical Concerns

Legal Concerns

  • Predatory Pricing
    • Aggressive pricing to drive out newer, smaller rivals
    • After removal of rival, prices are raised again

Dr. Rosenbloom

determining the base price16
Determining the Base Price

Strategic Pricing Concerns

Ethical Concerns

Legal Concerns

  • Exaggerated Comparative Price Advertising
    • Using comparison prices of dubious validity
    • Product introduced at artificially high prices for a short time then dropped to a new low long-term price

Dr. Rosenbloom

determining the base price17
Determining the Base Price

Strategic Pricing Concerns

Ethical Concerns

Legal Concerns

  • Price gouging laws
  • ATM fee practices
  • Raising prices for necessities in disaster areas

Dr. Rosenbloom

adjustments to base prices
Adjustments to Base Prices
  • Reasons base prices change over time:
    • Variation in objectives over product life cycle
      • Introductory low prices, higher decline prices
    • Competitive price moves
      • Competitive forces dictate modification of pricing
      • Rubbermaid, the U.S. Steel Industry

Dr. Rosenbloom

price flexing discounts allowances
Price Flexing Discounts/Allowances
  • Reasons base prices change over time:
    • Price Flexing - Discounts/Allowances

To Trade

To Consumer

Trade-in Allowances

Functional Or Trade

Cash Discounts

Seasonal

Rebates

Quantity

Cash

Sales Promotion

Dr. Rosenbloom

price flexing discounts allowances1
Price Flexing Discounts/Allowances

To Consumer

Trade-in Allowances

  • Used to encourage consumers to upgrade to newer or more expensive products

Cash Discounts

Rebates

Dr. Rosenbloom

price flexing discounts allowances2
Price Flexing Discounts/Allowances

To Consumer

Trade-in Allowances

  • Seasonal or age-based discounts used to encourage purchases

Cash Discounts

Rebates

Dr. Rosenbloom

price flexing discounts allowances3
Price Flexing Discounts/Allowances

To Consumer

Trade-in Allowances

  • After the purchase payment made to the consumer by the producer

Cash Discounts

Rebates

Dr. Rosenbloom

price flexing discounts allowances4
Price Flexing Discounts/Allowances

To Trade

Functional Or Trade

  • Compensate the trade for functions performed:
    • Buying & Selling
    • Transportation
    • Storage
    • Financing
    • Risk-taking
    • Providing Information
    • Standardizing & Grading

Seasonal

Quantity

Cash

Sales Promotion

Dr. Rosenbloom

price flexing discounts allowances5
Price Flexing Discounts/Allowances

To Trade

Functional Or Trade

  • Permits seasonal marketers to maintain steady production and to sustain operations in out-of-season lulls

Seasonal

Quantity

Cash

Sales Promotion

Dr. Rosenbloom

price flexing discounts allowances6
Price Flexing Discounts/Allowances

To Trade

Functional Or Trade

Seasonal

Quantity

Price

Cash

Spring

Summer

Fall

Winter

Sales Promotion

Dr. Rosenbloom

price flexing discounts allowances7
Price Flexing Discounts/Allowances

To Trade

Functional Or Trade

  • Induce larger-quantity purchases and to reward customers for making fewer purchases but purchasing in larger quantities

Seasonal

Quantity

Cash

Sales Promotion

Dr. Rosenbloom

price flexing discounts allowances8
Price Flexing Discounts/Allowances

To Trade

Functional Or Trade

  • Encourage prompt payment from customers. Invoice includes payment terms and period of time that the cash discount is available

Seasonal

Quantity

Cash

Sales Promotion

Dr. Rosenbloom

price flexing discounts allowances9
Two percent off the total invoice price if paid within 10 days of the invoice date. Otherwise the total invoice price is due in 30 daysPrice Flexing Discounts/Allowances

To Trade

Functional Or Trade

Seasonal

Quantity

Cash

Sales Promotion

2/10, Net 30

Dr. Rosenbloom

price flexing discounts allowances10
Price Flexing Discounts/Allowances

To Trade

Functional Or Trade

  • Used by producers to encourage greater purchases or used to induce retailers to provide shelf or display space

Seasonal

Quantity

Cash

Sales Promotion

Dr. Rosenbloom

price flexing discounts allowances11
Price Flexing Discounts/Allowances

To Trade

Functional Or Trade

Off-Invoice Allowances

Seasonal

Quantity

Bill-Back Allowances

Cash

Sales Promotion

Stocking Allowances

Dr. Rosenbloom

other forms of price flexing
Other Forms of Price Flexing
  • Price shading
    • Salesperson reduces base price because of the need to secure a large/important client
  • Price customizing
    • New technology allows for transaction-by-transaction customization

Dr. Rosenbloom

other forms of price flexing1
Other Forms of Price Flexing
  • Price promotion
    • Sales, incentive pricing
    • Retailers began forward-buying or diverting product
    • Every Day Low Pricing (EDLP) is reducing the use of price promotion
  • Couponing
    • Free-standing inserts (in newspapers)
    • Point of purchase

Dr. Rosenbloom

other forms of price flexing2
Other Forms of Price Flexing
  • Pricing for different segments
    • Geographic segments
      • Different prices in different zones
    • Usage segments
      • Different prices for high volume users
    • Demographic segments
      • Different prices for students, children, etc.
    • Time segments
      • On- and off-season rates

Dr. Rosenbloom

geographic pricing policies
Geographic Pricing Policies

FOB

Pricing

Uniform Delivered Pricing

Zone

Pricing

Basing-Point

Pricing

Dr. Rosenbloom

geographic pricing policies1
Geographic Pricing Policies

Basing-Point

Pricing

FOB

Pricing

Uniform Delivered Pricing

Zone

Pricing

  • Using freight absorption pricing (FOB - Free On Board) the seller pays or absorbs the transportation charges

Dr. Rosenbloom

geographic pricing policies2
Geographic Pricing Policies

Basing-Point

Pricing

FOB

Pricing

Uniform Delivered Pricing

Zone

Pricing

  • Using zone pricing all consumers in the same zone pay the same transportation charge

Dr. Rosenbloom

geographic pricing policies3
Geographic Pricing Policies

Basing-Point

Pricing

FOB

Pricing

Uniform Delivered Pricing

Zone

Pricing

  • Using basing-point pricing, all freight costs are priced as if they originated from the same basing point

Dr. Rosenbloom

geographic pricing policies4
Geographic Pricing Policies

Basing-Point

Pricing

FOB

Pricing

Uniform Delivered Pricing

Zone

Pricing

  • Using uniform delivered pricing all consumers pay the same transportation charges (average shipping expense to all customers)

Dr. Rosenbloom

pricing policies
Pricing Policies

PrestigePricing

Loss-LeaderPricing

Odd-Even Pricing

Product Line Pricing

Dr. Rosenbloom

pricing policies1
Pricing Policies

PrestigePricing

Loss-LeaderPricing

Odd-Even Pricing

Product Line Pricing

  • Pricing at relatively high levels so as to convey an image of high quality or exclusivity

Dr. Rosenbloom

pricing policies2
Pricing Policies

PrestigePricing

Loss-LeaderPricing

Odd-Even Pricing

Product Line Pricing

  • Pricing policy which offers products at prices below or near cost to attract consumers from competitors’ stores

Dr. Rosenbloom

pricing policies3
Pricing Policies

PrestigePricing

Loss-LeaderPricing

Odd-Even Pricing

Product Line Pricing

  • Price lining is producing or marketing multiple products at different price points
  • Bundling is marketing two or more products in a single package for a special price

Dr. Rosenbloom

pricing policies4
Pricing Policies

PrestigePricing

Loss-LeaderPricing

Odd-Even Pricing

Product Line Pricing

  • Odd pricing refers to a price ending with an odd number just under a round number
  • Even pricing is used to convey high quality

Dr. Rosenbloom