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Chapter Twenty - PowerPoint PPT Presentation

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Chapter Twenty
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  1. Chapter Twenty Pricing Strategies and Tactics

  2. 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

  3. Pricing Strategies • Differential pricing strategies • Competitive pricing strategies • Product-line pricing strategies • Psychological and image pricing strategies • Distribution-based pricing strategies

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

  5. $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

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

  7. Competitive Pricing Strategies • Meeting competition • Undercutting competition Types: • Price leadership • Follow the leader • Penetration pricing • Predatory pricing • Traditional • Inflationary

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

  9. Captive pricing Leader and Bait pricing Price lining Price-bundling & Multi-unit $45.99 $39.99 $19.99 $24.99 Product-Line PricingStrategies

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

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

  12. 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

  13. Markup on Selling Price and on Cost Cost-Plus Method Break-even Analysis Target Return Pricing Average Cost Establishing Exact Prices

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

  15. 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:

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

  17. Price Adjustments • Cash discounts • Trade discounts • Quantity discounts • Seasonal discounts • Chain discounts • Promotional allowances

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

  19. 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

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

  21. 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