Pricing Strategies
the price is what you pay, the
value is what you
receive…anonymous
3 Potent Forces
Image
(premium or
least price)
 Competition
(nonprice)
 Value
(objective or
perceived)
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Rising Costs
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Communicate with customers
Improve efficiency in the company
Absorb the cost increases
Emphasize the value of the product
Anticipate rising costs/lock in prices early
Pricing Factors
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Product/service
costs
Market factors
Sales volume
Competitors’ prices
Competitive
advantage
sensitivity
Desired image
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Economic conditions
Business location
Seasonal
fluctuations
Psychological factors
Credit
terms/purchase
discounts
Customers’ price
Customized or
Dynamic Pricing
A pricing technique that sets different
prices on the same products and
services for different customers using
the information that a company
collects about its customers
Pricing Strategies and
Tactics
Introducing a New Product
 Getting the Product Accepted
-revolutionary
-evolutionary
-me-too
 Maintaining the Market Share
 Earning a Profit
Pricing Strategies and Tactics
Introducing a New
Product
 Market
Penetration
 Skimming
 Sliding down the
Demand Curve
Pricing
Strategies
and
Tactics
Pricing Established Goods and Services
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Odd Pricing: sets prices that end in odd
numbers to create the psychological impression
of low prices
Price Lining: greatly simplifies the pricing
function by pricing different products at
different price points, depending on quality,
features, and cost
Leader Pricing: involves marking down the
normal price of a popular item in an attempt to
attract more customers who make incidental
purchases of other items at regular prices
Strategies and Tactics (cont’d)
Geographic Pricing:
zone: involves setting different prices for
different territories because of different
transportation costs
delivered: charges all of its customers the
same price regardless of location
FOB-Factory: sells merchandise to
customers who then also pay for the
shipping costs
Strategies and Tactics (cont’d)
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Opportunistic Pricing: involves charging
customers unreasonably high prices when
goods or services are in short supply
Discounts: reductions from normal list
prices, ex. Multiple-unit pricing: offering
customers discounts if they purchase in
quantity
Bundling: involves grouping together several
products into a package that offers extra
value at a special price, ex. optional, captive,
byproduct
Suggested Retail Price: manufacturer
suggestion
Pricing Strategies for
Retailers

Markup: difference between cost of a
product and its selling price
Dollar Markup=Retail Price – Cost
% Retail Markup=Dollar Markup/Retail Price
% Cost Markup=Dollar Markup/Cost
Markup=Operating Expenses+Reductions+Profits
Net Sales +Reductions
Follow-the-Leader
 Below-Market Pricing
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Pricing Strategies
for Retailers (cont’d)
Sale Rack Shuffle
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clothing company makes a dress for $50
Sells dress to retailer at $80
Retailer marks dress up to $200
If unsold after 8-12 weeks, marks down by
25% to $150
If still unsold, marks down further until it
does. Clothing company and retailer agree
how to share the cost of markdown.
Pricing Strategies for
Manufacturers
Direct Costing
absorption costing: traditional
method in which all manufacturing
and overhead costs are absorbed into
total cost
variable costing: includes in the
product’s cost only those that vary
directly with the quantity produced.
Pricing Strategies for
Manufacturers (cont’d)
Full Absorption Income Statement
Sales
790,000
Cost of Goods
Materials
250,500
Direct Labor
190,200
Factory Overhead
120,200 560,900
Gross Profit
229,100
Operating Expenses
General and Administrative 66,100
Selling
112,000
Other
11,000 189,100
Net Income
40,000
Pricing Strategies for Manufacturers
(cont’d)
Direct Cost Income Statement
Sales Revenue
Variable Costs
Materials
250,500
Direct Labor
190,200
Variable factory overhead
13,200
Contribution Margin (36.5%)
Fixed Costs
Factory Overhead
107,000
Fixed selling expenses
63,900
General and Administrative 66,100
Others
11,000
Net Income
790,000
502,000
288,000
248,000
40,000
Pricing for
Manufacturers
(cont’d)
Computing the Break-Even
Selling Price
Selling Price=
Profit + (Variable Cost/U x Qty Produced)
+Total Fixed Cost
Qty Produced
Pricing Strategies for
Service Firms
 Hourly
Rate
with Profit
 With
Materials
 Without
Materials
Impact of Credit on
Pricing
 Credit
Cards
 Installment
Credit
 Trade Credit