Chapter 20 Setting the right price

1. Chapter 20Setting the right price

2. Establish pricing objectives Estimate demand, costs, and profits Choose a price strategy Fine tune with pricing tactics Results lead to the right price Steps in Setting the Right Price

3. Pricing Strategies • Skimming pricing strategy: the use of a high price relative to competitive offerings. Skimming http://www.youtube.com/watch?v=xlcygXYK_Y0&feature=player_embedded

4. Pricing Strategies Skimming • Penetration pricing policy: • the use of relatively low price as compared with competitive offerings Penetration

8. Pricing Strategies Skimming • Status quo pricing policy: • the use of relatively similar price as compared with competitive offerings Penetration Status quo

9. Discounts, Allowances, Rebates Geographic pricing Special pricing tactics Tactics for Fine-Tuning the Base Price

10. Reductions From List Price Cash Discounts • Cash discount: price reduction offered to a consumer, industrial user, or marketing intermediary in return for prompt payment of a bill.

11. Reductions From List Price Cash Discounts • Trade Discounts: payment to a channel member or buyer for performing marketing functions Trade Discounts

12. Reductions From List Price Cash Discounts • Quantity discount: price reduction granted for a large-volume purchase. • Sliding scale rebate. Trade Discounts Quantity Discounts

13. Three Basic Marketing Price Structures/Services Challenges: 1. Costs difficult to trace. 2. Labor is more difficult to price than materials. 3. Costs may not equal the value that customers perceive the services are worth. Challenges: 1. Small firms may charge too little to be viable. 2. Prices may not reflect customer value. Cost-based Competition- based Demand-based/value Challenges: 1. Monetary price must be adjusted to reflect the value of non-monetary costs. 2. Information on costs is less available to customers; hence, price may not be a central factor.

14. Geographic Pricing • FOB (free on board) Origin: • Freight Absorption pricing: • Uniform-delivered price: • Zone pricing: • Basing-point system:

15. Zone Pricing

16. Seattlecustomerpays $130 $30 freight $10 freight Chicago customer pays $110 Los Angeles customer pays $120 $20 freight St. Louis plant is “basing-point” $100 base price Basing-point Pricing

17. Price Lining Single price Two part pricing Several line items at specific price points Offers all goods/services at the same price Charge two separate amounts for 1 product Leader Pricing Sell product at near or below cost Odd-Even Pricing Odd-number prices imply bargain Even-number prices imply quality Bait Pricing Lure customers through false or misleading price advertising Price Bundling Combining two or more products in a single package Other Pricing Tactics

18. Summary • Any questions??