Objectives Setting the Price Adapting the Price Initiating

Objectives • Setting the Price • Adapting the Price • Initiating & Responding to Price Changes

Price - Quality Strategies Product Quality High Med Low Price High Medium Low Premium Value High Value Super Value Overcharging Medium Value Good-Value Rip-Off False Economy

Setting Pricing Policy 1. Selecting the pricing objective 2. Determining demand 3. Estimating costs 4. Analyzing competitors’ costs, prices, and offers 5. Selecting a pricing method 6. Selecting final price

Types of Costs Fixed Costs (Overhead) Variable Costs that don’t vary with sales or production levels. Costs that do vary directly with the level of production. Executive Salaries Rent Raw materials Total Costs Sum of the Fixed and Variable Costs for a Given Level of Production

The Three C’s Model for Price Setting Low Price No possible profit at this price Costs Competitors’ prices and prices of substitutes Customers’ High Price assessment No possible of unique demand at product this price features

Pricing Methods • • • Markup Pricing Target Return Pricing Perceived Value Pricing Going-Rate Pricing Sealed-Bid Pricing

Some important pricing definitions Value Example: • Utility: The attribute Caterpillar that makes it capable Tractor is $100, 000 vs. of want satisfaction Market $90, 000 if equal • Value: The worth in 7, 000 extra durable terms of other products 6, 000 reliability • Price: The monetary 5, 000 service medium of exchange. 2, 000 warranty $110, 000 in benefits $10, 000 discount!

Promotional Pricing • • Loss-leader pricing Special-event pricing Cash rebates Low-interest financing Longer payment terms Warranties & service contracts Psychological discounting

Psychological Pricing • Most Attractive? A 32 oz. B $2. 19 $1. 99 26 oz. Assume Equal Quality • Better Value? • Psychological reason to price this way?

Discriminatory Pricing Customer Segment Product-form Location Time

Price-Reaction Program for Meeting a Competitor’s Price Cut Has competitor cut his price? Yes No No No Hold our price at present level; continue to watch competitor’s price Is the price Is it likely to be How much has likely to permanent Yes his price been significantly Yes aprice cut? hurt our sales? By less than 2% Include a cents-off coupon for the next purchase By 2 -4% Drop price by half of the competitor’s price cut By more than 4% Drop price to competitor’s price

Review • Setting the Price • Adapting the Price • Initiating & Responding to Price Changes