PRICING PRODUCTS Price the amount of money charged

PRICING PRODUCTS

Price - the amount of money charged for a product or service, or the sum of the values that consumers exchange for the benefits of having or using the product or service.

Factors to consider when setting prices 1. Internal factors a. marketing objectives( survival, current profit maximization, market share leadership, product quality leadership)

b. Marketing mix strategy c. Target costing - pricing that starts with an ideal selling price, then targets costs that will ensure that the price is met.

Types of costs fixed costs- do not vary with production or sales level variable costs- vary directly with the level of production total costs-sum of the fixed and variable costs.

Experience curve or learning curve - the drop in the average per unit production cost that comes with accumulated production experience.

C. Organizational considerations

2. External Factors Affecting Pricing Decisions

2. External Factors a. The market and demand - pricing in different types of market (pure competition, monopolistic competition, oligopolistic competition, pure monopoly) - law of demand supply

Price elasticity - A measure of the sensitivity of demand to changes in price.

B. Competitors’ costs and prices c. other external factors - economic conditions - the government

General Pricing Approaches

I. Cost-Based Pricing 1. Cost-plus pricing - adding a standard markup to the cost of the product

2. Break-even pricing(target profit pricing) - setting price to bvreakeven on the costs of making and marketing a product; or setting price to make a target profit breakeven volume = fixed cost/(price-variable cost per unit)

II. Value-Based pricing - setting price based on buyers’ perceptions of value rather than on the seller’s cost. Value pricing - offering just the right combination of quality and good service at a fair price

III. Competition-Based Pricing - setting prices based on the prices that competition chage for similar products.

New-Product Pricing Strategies

1. Market-skimming pricing - Setting a high price for a new product to skim maximum revenues layer by layer from the segments willing to pay the high price; the company makes fewer but more profitable sales.

2. Market penetration pricing - setting a low price for a new product in order to attract a large number of buyers and a large market share.

Product Mix Pricing Strategies

1. Product line pricing - setting the price steps between various products in a product line based on cost differences between the products, customer evaluations of different features, and competitors’ prices

2. Optional-product pricing - the pricing of optional or accessory products along with a main product.

3. Captive-product pricing - setting a price for products that must be used along with a main product.

4. By-product pricing - setting a price for by-products in order to make the main product’s price more competitive.

5. Product bundle pricing - combining several products and offering the bundle at a reduced price.

Price-Adjustment Strategies

1. Discount and Allowance pricing a. cash discount - a price reduction to buyers who pay their bills promptly.

b. quantity discount - a price reduction to buyers who buy large volumes.

c. Functional discount - a price reduction offered by the seller to trade channel member who perform certain functions such as selling, storing, and record keeping.

d. seasonal discount - a price reduction to buyers who purchase merchandise or services out of season.

e. allowance - promotional money paid by manufacturers to retailers in return for an agreement to feature the manufacturer’s products in some way. Trade allowance- price reductions given for turning in an old item when buying a new one.

Promotional allowancespayments or price reductions to reward dealers for participating in advertising and sales support programs.

2. Segmented Pricing - selling a product or service at two or more prices, where the difference in prices is not based on differences in costs.

3. Psychological pricing considers the psychology of prices and not simply the economics; the price is used to say something about the product

reference prices - prices that buyers carry in their minds and refer to when they look at a given product

4. Promotional pricing temporarily pricing products below the list price, and sometimes even below cost, to increase short-run sales.

5. Geographical pricing a. FOB-origin pricing goods are placed free on board a carrier; the customer pays the freight from the factory to the destination.

b. uniform-delivered pricing the company charges the same price plus freight to all customers, regardless of their location.

c. Zone pricing - the company sets up two or more zones. All customers within a zone pay the same total price; the more distant the zone, the higher the price.

d. basing-point pricing - the seller designates some city as a basing point and charges all customers the freight cost from that city to the customer location, regardless of the city from which the goods are actually shipped.

e. Freight-absorption pricing the seller absorbs all or part of the actual freight charges in order to get the desired business.

Public Policy and Pricing price fixing - states that sellers must set prices without talking to competitors.

predatory pricing - selling below cost with the intention of punishing a competitor or gaining higher long run profits by putting competitors out of business.