Chapter 20 - Pricing strategies & Tactics

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Chapter Twenty
Pricing Strategies and Tactics
Objectives
Identify various pricing strategies
Discuss differential pricing strategies
Describe skimming and penetration pricing
Demonstrate competition’s effect on pricing
Discuss inflation’s effect on pricing
Discuss product-line pricing strategies
Explore psychological aspects of price
Demonstrate geography’s influence on pricing
Discuss varied pricing tools
Overview legal restrictions on pricing
Identify a major ethical issue related to price
Pricing Strategies
Differential pricing strategies
Competitive pricing strategies
Product-line pricing strategies
Psychological and image pricing strategies
Distribution-based pricing strategies
Differential pricing
strategies
Different buyers pay
different prices
$24.95
Differential Pricing
Strategies
Types:
Variable Pricing
Second-Market
Discounting
Skimming
Periodic discounting
Random discounting
$24.95
Price Skimming
 Pricing
high, usually at the
beginning of a product’s life
Examples:
 personal computers
 CDs
 electronics
Competitive Pricing
Strategies
Types:
Meeting competition
Undercutting competition
Price leadership
Follow the leader
Penetration pricing
Predatory pricing
Traditional
Inflationary
Penetration Pricing
 Low
introductory price to
establish product quickly in
market
When to use:
 Elastic demand
 Economies of scale
 Threat of strong competition
Product-Line Pricing
Strategies
Captive pricing
Leader and Bait pricing
Price lining
$45.99 $39.99 $24.99 $19.99
Price-bundling & Multi-unit
Psychological & Image
Pricing
Reference Pricing
Regular price: $45
Now Only:
$25
$1.87
$4.95
$9.99
$175
$1000
Odd/Even Pricing
Prestige Pricing
Distribution-Based Pricing
X
X
F.O.B
Delivered
Zone
Uniform
Basing-point
Markups
Manufacturer
Wholesaler
Retailer
Cost
$20.00 Cost
$25.00 Cost
$29.41
20% markup $ 5.00 15% markup $ 4.41 41% markup $20.59
Selling price $25.00 Selling price $29.41 Selling price $50.00
Establishing Exact Prices
Markup on
Selling Price
and on Cost
Cost-Plus
Method
Break-even
Analysis
Target Return
Pricing
Average
Cost
Establishing Exact Prices
Markup on Selling Price or Costs:
Amount added on
-----------------------Selling price
= % markup
Cost-Plus Method:
Cost + Amount added on = Price
Establishing Exact Prices
Average-cost method:
All costs
Average cost
------------------------ =
of a single unit
# Units produced
Target Return Pricing:
Fixed costs + Target return
Price
-------------------------------------- =
per unit
Units to be sold
Break-Even Analysis
Cost &Revenue ($)
Total Revenues
Profit
Loss
Breakeven
point
Units produced & sold
Total Costs
Fixed Costs
Price Adjustments
Cash discounts
Trade discounts
Quantity discounts
Seasonal discounts
Chain discounts
Promotional allowances
Pricing and the Law
ROBINSON-PATMAN ACT OF 1936
Discriminatory prices illegal unless….
Charged to meet competition
Justified by cost savings
Pricing and the Law
Fair Trade Practices Act
and their repeal in 1975
States: manufacturers may
fix final selling price
Federal gov’t: illegal if
good sold in different state
Pricing and Ethical issues
Are corporate social
policy and corporate
profit motive
compatible?
Review
Identify various pricing strategies
Discuss differential pricing strategies
Describe skimming and penetration pricing
Demonstrate competition’s effect on pricing
Discuss inflation’s effect on pricing
Discuss product-line pricing strategies
Explore psychological aspects of price
Demonstrate geography’s influence on pricing
Discuss varied pricing tools
Overview legal restrictions on pricing
Identify a major ethical issue related to price
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