Copyright Cengage Learning 2013 All Rights Reserved 1 Chapter 20: Setting the Right Price Designed & Prepared by Laura Rush B-books, Ltd. Introduction

Copyright Cengage Learning 2013

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1

Chapter 20: Setting the Right Price

Designed & Prepared by Laura RushB-books, Ltd.

Introduction to


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Learning OutcomesDescribe the procedure for settingthe right price

Identify the legal and ethical constraints on pricing decisions

Explain how discounts, geographic pricing, and other pricing tactics can be used to fine-tune the base price

Discuss product line pricing

Describe the role of pricing during periods of inflation and recession

LO1

LO2

LO3

LO5

LO4

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Establish Pricing Goals

Profit-Oriented

Sales-Oriented

Status Quo


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Choose a Price Strategy

Price skimming - A firm charges a high introductory price, often coupled

with heavy promotion.

Penetration Pricing - A firm charges a relatively low price for a product initially as a way

to reach the mass market.

Status Quo Pricing - Charging a price identical to or very close to the competition’s price.


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The Legality and Ethics ofPrice Strategy

Unfair Trade PracticesUnfair Trade Practices

Price FixingPrice Fixing

Price DiscriminationPrice Discrimination

Predatory PricingPredatory Pricing


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Tactics for Fine-Tuning the Base Price

Special pricing tactics Special pricing tactics

DiscountsDiscounts

Geographic pricingGeographic pricing


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Discounts, Allowances, Rebates, andValue-Based Pricing

Quantity DiscountsQuantity Discounts

Cash DiscountsCash Discounts

Functional DiscountsFunctional Discounts

Seasonal DiscountsSeasonal Discounts

Promotional AllowancesPromotional Allowances

RebatesRebates

Zero Percent FinancingZero Percent Financing

Value-Based PricingValue-Based Pricing

Markdown MoneyMarkdown Money


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Pricing Products Too Low

1. Managers attempt to buy market share through aggressive pricing.

2. Managers tend to make pricing decisions based on current costs, current competitor prices, and short-term share gains rather than on long-term profitability.


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Geographic Pricing

Basing-point pricing

Basing-point pricing

Freight absorptionpricing

Freight absorptionpricing

Zone pricingZone pricing

Uniform delivered pricing

Uniform delivered pricing

FOB origin pricingFOB origin pricing

Onlinehttp://www.ups.com


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http://www.ups.com/

Other Pricing TacticsSingle-Price Tactic All goods offered at the same price

Flexible Pricing Different customers pay different price

Professional Services Pricing

Used by professionals with experience,training or certification

Price Lining Several line items at specific price points

Leader Pricing Sell product at near or below cost

Bait Pricing Lure customers through false or misleading price advertising

Odd-Even Pricing Odd-number prices imply bargainEven-number prices imply quality

Price Bundling Combining two or more products in a single package

Two-Part Pricing Two separate charges to consume a single good

Pay What You Want Allowing customers to pay what they think a product is worth

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Consumer Penalties

An irrevocable loss of revenue

is suffered

Additional transaction costs

are incurred

Businesses Impose Consumer Penalties If...

Onlinehttp://www.princesscruises.comhttp://www.carnival.com


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http://www.princesscruises.com/

http://www.carnival.com/

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Product Line Pricing

Onlinehttp://www.beauty.com

Setting prices for an entire line of products.


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http://www.beauty.com/

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Relationships Among Products

ComplementaryComplementary

SubstitutesSubstitutes

NeutralNeutral


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Joint Costs

Costs that are shared in the manufacturing

and marketing of several products in a product life.


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Inflation

Cost-Oriented TacticsCost-Oriented Tactics

High InflationHigh Inflation

Demand-Oriented TacticsDemand-Oriented Tactics


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Cost-Oriented Tactics

Delayed-quotation pricing

Escalator pricing

Hold prices constant, but add new fees


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Demand-Oriented Tactics

Strategies to Make Demand

More Inelastic

Strategies to Make Demand

More Inelastic

Cultivate selected demandCultivate selected demand

Create unique offeringsCreate unique offerings

Change the package designChange the package design

Heighten buyer dependenceHeighten buyer dependence


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Recession

Bundling or UnbundlingBundling or Unbundling

Value-Based PricingValue-Based Pricing


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Supplier Strategies During Recession

Renegotiating contractsRenegotiating contracts

Offering helpOffering help

Keeping the pressure onKeeping the pressure on

Paring down suppliersParing down suppliers


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Copyright Cengage Learning 2013 All Rights Reserved 1 Chapter 20: Setting the Right Price Designed & Prepared by Laura Rush B-books, Ltd. Introduction