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Pricing

Pricing. Fall 2006. A customer might ask, “What does that cost?” To the customer, what are costs?. Pricing Products. Price is the amount of money charged for a product. This is not the same as the COSTS of product acquisition. 1995 FERRARI 355     $95,000.00. Pricing Terms.

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Pricing

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  1. Pricing Fall 2006

  2. A customer might ask, “What does that cost?” • To the customer, what are costs?

  3. Pricing Products • Price is the amount of money charged for a product. This is not the same as the COSTS of product acquisition. 1995 FERRARI 355     $95,000.00

  4. Pricing Terms • Fixed Costs • Variable Costs • Price Elasticity: sensitivity of demand to changes in price • D Quantity Demanded/ D Price

  5. Break Even Point • Knothole Skiers • Costs: • $25,000 rent for studio • $2 materials for manufacture of CD • $.50 royalty to artists • $ 5 price

  6. Internal Factors Affecting Pricing • Marketing Objectives • profits • market share • survival • middleman loyalty • discourage competitors • product-line consistency • visibility for product

  7. Internal Factors Affecting Pricing • Costs • Production and efficient use of capacity • Experience curve • Variable Costs

  8. External Factors Affecting Pricing • Competition • Demand • Economy • Government • Societal Concerns

  9. Setting Price • Cost Based • Competition Based • Demand/Value Based $40,137.00

  10. Pricing Strategies: The Familiar • Market-Skimming Pricing • Market-Penetration Pricing

  11. Pricing Strategies: The Familiar • Product Line Pricing

  12. Pricing Strategy • Sells: 100,000 units • Price: $10 • Fixed Costs: $500,000 for a capacity of 200,000 Units • Variable Costs: $1 • Request to sell in a new market. What is the minimum selling price the firm should accept?

  13. Second Market Discounting • Sells: 100,000 units • Price: $10 • Fixed Costs: $500,000 for a capacity of 200,000 Units • Variable Costs: $1 • Request to sell in a new market. What is the minimum selling price the firm should accept?

  14. Pricing Strategy • Average Economic Costs (all costs plus profit) • $55 at 20 Units • $40 at 40 Units • 40 Consumers per period are interested in product. • 20 want it at beginning of period and willing to pay $50. • 20 are price sensitive and will pay no more than $30 per unit. • At which price should the firm sell its product?

  15. Periodic/Seasonal Discounting • Average Economic Costs (all costs plus profit) • $55 at 20 Units • $40 at 40 Units • 40 Consumers per period are interested in product. • 20 want it at beginning of period and willing to pay $50. • 20 are price sensitive and will pay no more than $30 per unit. • At which price should the firm sell its product?

  16. Pricing Strategy • Distribute two films: Halloween XVI (a) and Chucky’s In Love (b). Albany (x) and Corvallis (y) theatres are interested. Discrimination is illegal as is tying. • Corvallis will pay $25K for (a) and $10K for (b) • Albany will pay $12K for (a) and $18K for (b). • What pricing strategy do you use?

  17. Price Bundling • Distribute two films: Halloween XVI (a) and Chucky’s In Love (b). Albany (x) and Corvallis (y) theatres are interested. Discrimination is illegal as is tying. • Corvallis will pay $25K for (a) and $10K for (b) • Albany will pay $12K for (a) and $18K for (b). • What pricing strategy do you use?

  18. Pricing Strategy • Produce computer printers. Ave. Economic Cost is $100 with a life of 3 years. During that time, product uses ink cartridges for which AEC is .50 per month. Consumers willing to pay $50 for printer and $2 per month for supplies. What pricing?

  19. Captive Product Pricing • Produce computer printers. Ave. Economic Cost is $100 with a life of 3 years. During that time, product uses ink cartridges for which AEC is .50 per month. Consumers willing to pay $50 for printer and $2 per month for supplies. What pricing?

  20. Other Pricing Issues • Segmented Pricing: different customers pay different prices • Psychological Pricing

  21. Other Pricing Issues • Price cuts and price increases: jnd • Channel members • Bad: price fixing (collusion), predatory pricing, price discrimination, resale price maintenance, deceptive pricing

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