Chapter 18
Setting the right price
Steps in Setting the Right Price
Establish pricing objectives
Estimate demand, costs, and profits
Choose a price strategy
Fine tune with pricing tactics
Results lead to the right price
Pricing Strategies
Skimming
• Skimming pricing
strategy:
the use of a high price
relative to
competitive offerings.
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Pricing Strategies
Skimming
Penetration
• Penetration pricing policy:
the use of relatively low price
as compared with
competitive offerings
Pricing Strategies
Skimming
Penetration
Status quo
• Status quo pricing policy:
the use of relatively similar
price as compared with
competitive offerings
Three Basic Marketing Price Structures
Challenges:
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.
1. Small firms may charge too
little to be viable.
2. Prices may not reflect
customer 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.
Tactics for Fine-Tuning the Base Price
Discounts
Geographic pricing
Special pricing tactics
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.
Reductions From List Price
Cash Discounts
Trade Discounts
• Trade Discounts: payment
to a channel member or
buyer for performing
marketing functions
Reductions From List Price
Cash Discounts
Trade Discounts
Quantity Discounts
• Quantity discount:
price reduction granted
for a large-volume
purchase.
• Sliding scale rebate.
Geographic Pricing
• FOB (free on board) Origin:
• Freight Absorption pricing:
• Uniform-delivered price:
• Zone pricing:
• Basing-point system:
Zone Pricing
Basing-point Pricing
Seattle
customer
pays $130
Los Angeles
customer
pays $120
Chicago customer
pays $110
St. Louis plant is
“basing-point”
$100 base price
Other Pricing Tactics
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 bargain
Even-number prices imply quality
Price Bundling
Combining two or more products in a
single package
Summary
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• Any questions??