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Pricing Strategies. Ch. 2 6 ME. Section 26 .1. Basic Pricing Policies. Basic Pricing Concepts. Cost-Oriented Pricing Marketers first calculate the costs of acquiring or making a product and their expenses of doing business

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basic pricing concepts
Basic Pricing Concepts
  • Cost-Oriented Pricing
    • Marketers first calculate the costs of acquiring or making a product and their expenses of doing business
    • Mark-Up Pricing – resellers add a dollar amount to their cost to arrive at a price
    • Cost-Plus Pricing – all costs and expenses are calculated, and then the desired profit is added to arrive at a price
  • Demand-Oriented Pricing – determines what consumers are willing to pay for given goods and services
    • Pricing is dependent on the consumer’s perceived value of the item
basic pricing concepts1
Basic Pricing Concepts
  • Competition-Oriented Pricing
    • Price above the competition
    • Price below the competition
    • Price in line with the competition (Going-Rate Pricing)
    • There is no relationship between the cost and price or between the demand and price
    • Competitive-Bid Pricing– determines the price for a product based on bids submitted by companies to a company or government agency
  • Establishing Base Price – all three pricing strategies can be used
pricing policies
Pricing Policies

One-Price Policy – is one in which all customers are charged the same prices

Flexible-Price Policy – is one in which customers pay different prices for the same type or amount of merchandise

non going rate strategies
Non-Going Rate Strategies

Skimming Pricing – is a pricing policy that sets a very high price for a new product

Penetration Pricing – the price for a new product is set very low

specialized methods for closing the sale
Specialized Methods for Closing the Sale

Which Close – encourages a customer to make a decision between two items

Standing-Room-Only Close – is used when a product is in short supply or when the price will be going up in the near future

Direct Close – is a method in which you ask for the sale

Service Close – is a closing in which you explain services that overcome obstacles or problems

failure to close the sale
Failure to Close the Sale
  • Not every sale presentation will result in a sale
  • Get Feedback
  • Maintain a Positive Attitude
    • Prepare for future sales calls
    • Success in sales
product mix strategies
Product Mix Strategies
  • Product Mix Pricing Strategies – involve adjusting prices to maximize the profitability for a group of product rather than on just one item
    • Price Lining – is a special pricing technique that sets a limited number of prices for specific groups or lines of merchandise
    • Optional Product – sets prices for accessories or options sold with the main product
    • Captive Product – sets the price for one product low but compensates for that low price by pricing the supplies needed to operate that product high
product mix strategies1
Product Mix Strategies
  • By-Product – helps businesses get rid of excess materials used in making a product by using low prices
  • Bundle Pricing – a company offers several complimentary products in a package that is sold at a single price
  • Geographical Pricing – refers to price adjustments required because of the location of the customer for delivery of products
segmented pricing strategies
Segmented Pricing Strategies
  • Segmented Pricing Strategy – uses two or more different prices for a product, even though there is no difference in the item’s cost
    • Buyer Identification – recognizes a buyer’s sensitivity
    • Product Design – create different prices for different product styles that do not reflect the cost of making the item, but the demand for a given style
    • Purchase Location – involves pricing according to where a product is sold and/or the location of the good or service
    • Time of Purchase – prices charged according to demand based on time of day
psychological pricing strategies
Psychological Pricing Strategies
  • Psychological Pricing – are pricing techniques that help create an illusion for customers
    • Odd-Even Pricing – involves setting prices that all end in either odd or even numbers
      • Odd numbers convey a bargain
      • Even numbers convey a quality image
    • Prestige Pricing – sets higher-than-average prices to suggest status and higher quality to the consumer
    • Multiple-Line Pricing – suggests a bargain and helps to increase sales volume
    • Everyday Low Prices (EDLP) – are low prices set on a consistent basis with no intention of raising then or offering discounts in the future
promotional pricing
Promotional Pricing
  • Promotional Pricing – is generally used in conjunction with sales promotions where prices are reduced for a short period of time
    • Loss Leader Pricing – is used to increase store traffic by offering very popular items of merchandise for sale at below-cost prices
    • Special-Event – items are reduced in price for a short period of time, based on specific happenings
    • Rebates and Coupons
      • Rebates – are partial refunds provided by the manufacturer
      • Coupons – allow customers to take reductions at the time of purchase
discounts and allowances
Discounts and Allowances
  • Cash Discounts – are offered to buyers to encourage them to pay their bills quickly
  • Quality Discounts – are offered to buyers for placing large orders
    • Non-Cumulative – offered on one order
    • Cumulative – offered on all orders over a specified period of time
  • Trade Discounts– the way manufacturers quote prices to wholesalers and retailers
  • Seasonal Discounts – are offered to buyers willing to buy at a time outside the customary buying season
  • Allowances – go to directly to the buyer after a trade-in
steps in determining prices
Steps in Determining Prices

Establish Pricing Objectives

Determine Costs

Estimate Demand

Study Competition

Decide on a Pricing Strategy

Set Prices