12. Price Determination and Pricing Strategies. Learning Objectives. After studying this chapter, you should be able to: Discuss the interrelationships among price, demand, demand elasticity, and revenue. Understand methods for determining price.
Price Elasticity of Demand =
% Change in PricePrice Elasticity of Demand
Markup as a % of selling price =
Markup as a % of cost =
Price = Unit Cost +
Expected unit salesTarget-Return Pricing
Target-return pricing forecasts a fair or needed rate of return.
Product Line PricingBundlingPremium pricingPartitional pricing
Competitive PricingPenetration pricingPrice signaling
Psychological PricingOdd-even pricingCustomary pricing
Marketers offer cash discountsfor prompt payment by retailers. Terms of payment may be “3/10, net 30”
Trade sales promotion allowancesare concessions a manufacturer
pays or allocates to wholesalers or retailers to promote its products.
Marketers give quantity discountswhen the customer buys large quantities of a product.
FOB Origin Pricing
FOBstands for “free on board,” meaning the goods are placed on a carrier and shipped to the customer.
Uniform Delivered Price
Using a uniform delivered price, the company charges each customer an average freight amount.
Zone pricing is an approach between the previous two. Customers within an area are charged a common price.
Freight Absorption Pricing
Freight absorption pricing is a form of geographical pricing. The seller absorbs freight costs to attract more business.
Sealed-bid pricing is unique in that the buyer determines the pricing approach and the eventual price.
Reverse auctions, in which sellers bid instead of buyers and prices fall instead of rise, enable buyers to negotiate lower prices from multiple suppliers.
A bait and switch occurs when the retailer advertises but does not actually offer a reasonable amount of the promoted product.
In some instances, companies charge very low prices to drive competition from the market. This practice is called predatory pricing.
Unit pricing presents price information on a per-unit weight or volume basis to facilitate price comparisons across brands and across package sizes within brands.