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1
Lamb, Hair, McDaniel
CHAPTER 20
Setting the Right Price
2
How to Set a Price on aProduct or Service
Fine tune price with pricing tacticsFine tune price with pricing tactics
Choose a price strategyChoose a price strategy
Estimate demand, costs, and profitsEstimate demand, costs, and profits
Establish pricing goalsEstablish pricing goals
Results lead to the right price
3
Setting the Right Price
Estimate demand,costs, and profitsEstimate demand,costs, and profits
Establishprice goals
Establishprice goals
Choose aprice strategy
Choose aprice strategy
Fine-tunebase priceFine-tunebase price
Set price$x.yy
Set price$x.yy
Evaluateresults
Evaluateresults
Low $
High $
Skimming
Status quo
Penetration
4
Establish Pricing Goals
Profit-Oriented
Sales-Oriented
Status Quo
5
Choose a Price Strategy
Status Quo Pricing
Status Quo Pricing
Price Skimming
Price Skimming
Penetration Pricing
Penetration Pricing
Charging a price identical to or very close to the competition’s price.Charging a price identical to or very close to the competition’s price.
A firm charges a high introductory price, often coupled with heavy promotion.
A firm charges a high introductory price, often coupled with heavy promotion.
A firm charges a relatively low price for a product initially as a way to reach the mass market.
A firm charges a relatively low price for a product initially as a way to reach the mass market.
6
The Legality of Price Strategy
Unfair Trade PracticesUnfair Trade Practices
Price FixingPrice Fixing
Price DiscriminationPrice Discrimination
Predatory PricingPredatory Pricing
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Price Discrimination
There must be price discrimination. Transaction must occur in interstate commerce. Seller must discriminate by price among two or more
purchasers. Products sold must be commodities or tangible goods. Products sold must be of like grade and quality. There must be significant competitive injury.
The Robinson-Patman Act of 1936:
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Predatory Pricing
The practice of charging a very low price for a product with the intent of driving competitors out of business or out of a market.
Predatory Pricing
Predatory Pricing
9
Tactics for Fine-Tuning the Base Price
Special pricing tactics Special pricing tactics
DiscountsDiscounts
Geographic pricingGeographic pricing
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Discounts, Allowances, Rebates, and Value-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
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Value-Based Pricing
Setting the price at a
level that seems to the
customer to be a good
price compared to the
prices of other options.
Value-BasedPricing
12
Geographic PricingFOB Origin
Pricing
UniformDelivered
Pricing
Zone Pricing
FreightAbsorption
Pricing
Basing-PointPricing
The buyer absorbs the freight costs from the shipping point
(“free on board”).
The seller pays the freight charges and bills the purchaser an
identical, flat freight charge.
The U.S. is divided into zones, and a flat freight rate is charged to
customers in a given zone.
The seller pays for all or part of the freight charges and does not
pass them on to the buyer.
The seller designates a location as a basing point and charges all buyers
the freight costs from that point.
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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
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Fine-Tuning the Base PriceFine-Tuning the Base Price
Discounts GeographicOther
TacticsConsumerPenalties
Single price
Flexible
Professionalservices
Price lining
Leader
Bait
Odd–even
Bundling
UnbundlingTwo-part
Uniformdelivered
Zone
Freightabsorption
Basing-point
Quantity• cumulative• noncumulative
Quantity• cumulative• noncumulative
CashCash
Functional(trade)
Functional(trade)
SeasonalSeasonal
Promotional(trade)
Promotional(trade)
RebateRebate
0% Financing0% Financing
Value-basedValue-based
Pricing Tactics
FOBorigin
15
Pricing During Inflation and Pricing During Inflation and RecessionRecession
RecessionInflation
Contract product lines
Contract product lines
Delayed-quotation pricing
Delayed-quotation pricing
Escalatorpricing
Escalatorpricing
Select demandSelect
demand
Unique offeringUnique offering
Change package design
Change package design
Increase buyer dependence
Increase buyer dependence
Cost-oriented tactics
Cost-oriented tactics
Demand-oriented tactics
Price
Product
Suppliers
Value-based
Bundling
Unbundling
New products
New product categories
Renegotiate contracts
Offer help
Keep pressure on suppliers
Reduce number of suppliers
Ch 20 Discussion QuestionsCh 20 Discussion Questions
1.1. Describe the procedure for setting the right price in Describe the procedure for setting the right price in marketing.marketing.
2.2. Explain the four major legal and ethical concerns in Explain the four major legal and ethical concerns in pricing decisions. pricing decisions.
3.3. What is pricing tactics? Explain how discounts, What is pricing tactics? Explain how discounts, geographic pricing, and other special pricing tactics geographic pricing, and other special pricing tactics can be used to fine-tune the base price.can be used to fine-tune the base price.
4.4. Explain how pricing decisions change during Explain how pricing decisions change during periods of inflation and recession.periods of inflation and recession.