Chapter 20 Setting the right price Steps in

Chapter 20 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. http: //www. youtube. com/watch? v=xlcyg. XYK_Y 0&feature=player_embe dded

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

Tactics for Fine-Tuning the Base Price Discounts, Allowances, Rebates 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.

Three Basic Marketing Price Structures/Services Challenges: mp bas etiti ed on- Co s t-b as e d 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. Co 1. Small firms may charge too little to be viable. 2. Prices may not reflect customer value. Challenges: nda m e D value / d e s ba 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.

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

Zone Pricing

Basing-point Pricing Los Angeles customer pays $120 igh t freig ht fre $30 $1 0 Seattle customer pays $130 ight e r f 0 $2 Chicago customer pays $110 St. Louis plant is “basing-point” $100 base price

Other Pricing Tactics Single price Offers all goods/services at the same price Two part pricing Charge two separate amounts for 1 produc 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 misleadin price advertising Odd-number prices imply bargain Odd-Even Pricing Even-number prices imply quality Combining two or more products in a Price Bundling single package

Summary • Any questions? ?