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Chapter 30 – Pricing Strategies

Chapter 30 – Pricing Strategies. Three Pricing Strategies. Cost Oriented Pricing Markup Pricing Cost Plus Pricing Demand Oriented Pricing Competition Oriented Pricing Competitive Bid Going-Rate Pricing Business tend to use all three in making a decision!. One Price vs. Flexible Pricing.

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Chapter 30 – Pricing Strategies

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  1. Chapter 30 – Pricing Strategies

  2. Three Pricing Strategies • Cost Oriented Pricing • Markup Pricing • Cost Plus Pricing • Demand Oriented Pricing • Competition Oriented Pricing • Competitive Bid • Going-Rate Pricing Business tend to use all three in making a decision!

  3. One Price vs. Flexible Pricing • One Price Policy – when all customers are charged the same price for the goods and services offered for sale. • Price Tags • Flexible – Price Policy – permits customers to bargain for merchandise. • Rarely used for legal reasons. • Used for Cars, antiques, furniture etc…

  4. Product Life Cycle • Introduction • Growth • Maturity • Decline Maturity Growth Decline Introduction

  5. PLC - Introduction When a product is first being introduced, one of two strategies may be used…. • Skimming Pricing • Sets the price very high to create demand. • Usually when there are few competitors • Penetration Pricing • Initial Price is very low to attract many customers. • Used when there is lots of competition and when substitutes are available.

  6. PLC - Growth Stages • Growth Stage – is the period when sales are highest and the product is gaining popularity. • If Skimming Pricing was used in the Introduction Stage, then the price needs to be monitored and lowered when the sales begin to drop. • If Penetration Pricing was used, then very little will be done regarding the price.

  7. PLC – Maturity Stage • Marketers main goal during the Maturity Stage is to stretch the life of a product. Sales at this stage have started to level off. • Revitalize the Product • Find new Markets

  8. PLC – Decline Stage • During this stage, sales decrease and profit margins are reduced. • During this stage, marketers try to reduce the costs of manufacturing, advertising etc… • Once the product is no longer profitable, the product is phased out.

  9. Pricing Techniques • Psychological Pricing • Odd Even Pricing – 199.99 vs $200. Odd numbers convey a bargain, even numbers convey quality. • Prestige Pricing – setting prices higher than average to convey status or prestige. • Multiple Pricing – 3 for $.99 is more effective than selling items at $.33 each. • Promotional Pricing – usually used in conjunction with sales promotional when prices are lower than average.

  10. Discount Pricing • Cash Discounts – discounts are offered to buyers if they pay their bill on time. For example 2/10 net 30. 2% discount if paid in 10 days. • Quantity Discounts – when placing a large order quantities are given. • Seasonal Discounts – are offered to buyers who are willing to buy in advance of the customary buying season. • Promotional Discounts and Allowances – offered to wholesalers and retailers who are willing to advertise or promote a manufacturer’s products.

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