Pricing

© 2006 McGraw-Hill Companies, Inc., McGraw-Hill/Irwin Slide 13-24

What is the difference between pricing objectives and pricing constraints?

Pricing objectives involve specifying the role of price in an organization’s marketing and strategic plans whereas pricing constraints are factors that limit the range of prices a firm may set.

© 2006 McGraw-Hill Companies, Inc., McGraw-Hill/Irwin Slide 13-13

• Pricing Objectives

Profit

• Maximizing for Long-Run Profits or Current Profit

• Target Return

Sales

Market Share

Unit Volume

Survival

Social Responsibility

© 2006 McGraw-Hill Companies, Inc., McGraw-Hill/Irwin Slide 13-17

• Pricing Constraints

Demand for the Product Class, Product, Brand

Single Product versus a Product Line

Newness of Offering: Stage in its Product Life Cycle

Cost of Producing and Marketing the Product

Characteristics of its Competitive Market

Competitors’ Prices

Price-Floor, and Price-Ceiling Assessments

© 2006 McGraw-Hill Companies, Inc., McGraw-Hill/Irwin Slide 13-22

Pricing, product, and advertising strategies available to firms in four types of competitive markets

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• Demand Estimation

The Demand Curve

• Customer Psychographics - Choices/Preferences

• Price and Availability of Similar Products

• Consumer Income & Demographic factors

Movement Along Demand Curve v/s Shift of Demand Curve

Inputs/Intelligence to/from Forecasting

Price Elasticity of Demand

Cross-Elasticity of Demand

• Elastic v/s Inelastic Demand

• Product-Line Pricing: Substitutes v/s Compliments

© 2006 McGraw-Hill Companies, Inc., McGraw-Hill/Irwin Slide 13-28

Example: Demand Curves for Newsweek

Demand curve underinitial conditions

Shift in the demandcurve with more

favorable conditions

© 2006 McGraw-Hill Companies, Inc., McGraw-Hill/Irwin

Fundamental Revenue concepts

Slide 13-32

© 2006 McGraw-Hill Companies, Inc., McGraw-Hill/Irwin

Fundamental Cost concepts

Slide 13-41

© 2006 McGraw-Hill Companies, Inc., McGraw-Hill/Irwin Slide 14-7

Four approaches for selecting an approximate price level

© 2006 McGraw-Hill Companies, Inc., McGraw-Hill/Irwin Slide 14-8

• Demand-Oriented Pricing Strategies

Skimming Pricing

Penetration Pricing

Prestige Pricing

Price Lining

Odd-Even Pricing

Target Pricing

Bundle Pricing

Yield Management Pricing

© 2006 McGraw-Hill Companies, Inc., McGraw-Hill/Irwin Slide 14-9

Demand curves for two types of demand-oriented approaches

© 2006 McGraw-Hill Companies, Inc., McGraw-Hill/IrwinSlide 14-14

• Cost-Oriented Pricing Strategies

Standard Markup Pricing

Cost-Plus Pricing

• Cost-Plus Percentage-of-Cost Pricing

• Cost-Plus Fixed-Fee Pricing

Experience Curve Pricing

• Markup on Cost

• Markup on Selling Price

© 2006 McGraw-Hill Companies, Inc., McGraw-Hill/IrwinSlide 14-16

• Profit-Oriented Approaches

Target Profit Pricing

Target Return-On-Sales Pricing

Target Return-On-Investment Pricing

• Competition-Oriented Approaches

Customary Pricing / Fair-Market Pricing

Loss-Leader Pricing

Relational Adjustment/Flexible Pricing

© 2006 McGraw-Hill Companies, Inc., McGraw-Hill/Irwin Slide 14-29

Special Adjustments to List/Quoted Price

© 2006 McGraw-Hill Companies, Inc., McGraw-Hill/Irwin Slide 14-38

Price Fixing

• Legal and Regulatory Aspects of Pricing

• Horizontal Price Fixing v/s Vertical Price Fixing

• Collusion ; Rule of Reason ; Industry Norms

Price Discrimination

• Cost Justification Defense

• Meet-The-Competition Defense

Deceptive Pricing

Geographical Pricing

Predatory Pricing