2 Setting Prices SECTION 26.2 The various pricing techniques What You'll LearnThe various pricing techniquesThe steps in setting prices
3 Setting Prices SECTION 26.2 Why It's ImportantNow that you have studied pricing concepts and policies, it is time to look at the special pricing techniques that help companies achieve their business goals. Then you will put all of that information into a single process: the steps for determining price.
5 Setting Prices SECTION 26.2 Pricing Techniques Two common pricing techniques marketers use are:psychological pricingdiscount pricing
6 Setting Prices SECTION 26.2 Psychological Pricing Psychological pricing refers to techniques that create an illusion for customers or that make shopping easier for them. Common psychological pricing techniques are:odd-even pricingprestige pricingmultiple-unit pricingbundle pricingpromotional pricingeveryday low prices (EDLP)price liningSlide 1 of 5
7 Setting Prices SECTION 26.2 Psychological Pricing Odd-even pricing involves setting prices that end in either odd or even numbers. Odd numbers convey a bargain image; even numbers convey quality.Prestige pricing involves setting higher-than-average prices to suggest status and prestige.Slide 2 of 5
8 Setting Prices SECTION 26.2 Psychological Pricing Multiple-unit pricing involves pricing items in multiples to suggest a bargain and increase sales volume.Bundle pricing involves including several complementary products in a package and pricing them lower as a group than if they were bought separately.Slide 3 of 5
9 Setting Prices SECTION 26.2 Psychological Pricing Promotional pricing is generally used in conjunction with sales promotions when prices are lower than average.Loss-leader pricing provides items at cost to attract customers.In special-event pricing, prices are reduced for a short period of time, such as a holiday sale.Slide 4 of 5
10 Setting Prices SECTION 26.2 Psychological Pricing Everyday low prices (EDLP) are low prices that are set on a consistent basis with no intention of raising them or offering discounts in the future.Price lining involves offering all merchandise in a given category at certain prices, such as $25, $35, and $50.Slide 5 of 5
11 Setting Prices SECTION 26.2 Discount Pricing Discount pricing involves the seller's offering reductions from the usual price. They include:cashquantitytradeseasonal discountspromotional discounts and allowancesSlide 1 of 4
12 Setting Prices SECTION 26.2 Discount Pricing Cash discounts are offered to buyers to encourage them to pay their bills quickly.Quantity discounts are offered to buyers for placing large orders.Noncumulative quantity discounts are offered on one order.Cumulative quantity discounts are offered on all orders over a specified period of time.Slide 2 of 4
13 Setting Prices SECTION 26.2 Discount Pricing Trade discounts are the way manufacturers quote prices to wholesalers and retailers. Manufacturers establish suggested retail prices for their items, then grant members of the channel of distribution discounts from the list prices for performing their respective functions.Slide 3 of 4
14 Setting Prices SECTION 26.2 Discount Pricing Seasonal discounts are offered to buyers willing to buy at a time outside the customary buying season.Promotional discounts are offered to wholesalers and retailers willing to advertise or promote a manufacturer's products.Allowances are granted to customers for selling back an old model.Slide 4 of 4
15 Setting Prices SECTION 26.2 Steps in Setting Prices These are the six steps in determining a price for an item:1. Determine pricing objectives.2. Study costs.3. Estimate demand.4. Study competition.5. Decide on a pricing strategy.6. Set price.
16 Setting Prices SECTION 26.2 Step 1—Determining Pricing Objectives What is your purpose in setting a price? Do you want to increase sales volume or sales revenue? Establish a prestigious image? Increase your market share and market position? Answering these questions will help you keep your prices in line with other marketing decisions.
17 Setting Prices SECTION 26.2 Step 2—Study Costs Since the main reason for being in business is to make a profit, give careful consideration to the costs involved in making or acquiring the goods or services you will offer for sale. Determine whether and how you can reduce costs without affecting the quality or image of your product.
18 Setting Prices SECTION 26.2 Step 3—Estimate Demand Employ market research techniques to estimate consumer demand. The key to pricing goods and services is to set prices at the level consumers expect to pay. In many cases, those prices are directly related to demand.
19 Setting Prices SECTION 26.2 Step 4—Study Competition Investigate your competitors to see what prices they are charging for similar goods and services. Study the market leader. What is the range of prices from the ceiling price to the price floor? Will you price your goods lower than, equal to, or higher than your competitors'?
20 Setting Prices SECTION 26.2 Step 5—Decide on a Pricing Strategy You may decide to price your product higher than the competition's because you believe your product is superior. You may decide to set a lower price with the understanding that you will raise it once the product is accepted in the marketplace.
21 Setting Prices SECTION 26.2 Step 6—Set Price After you have evaluated all the foregoing factors, apply the pricing techniques that match your strategy and set an initial price. Be prepared to monitor that price and evaluate its effectiveness as conditions in the market change.
22 Reviewing Key Terms and Concepts ASSESSMENT26.2Reviewing Key Terms and Concepts1. How are odd-even, prestige, multiple-unit, and bundle pricing related? Different?2. What is the main difference between promotional pricing and everyday low prices?3. What is the key factor in deciding on price lines?4. Name five types of discount pricing techniques.5. List the six steps in setting prices.
23 ASSESSMENT Thinking Critically 26.2 Johnson & Johnson promoted its baby shampoo to adult male athletes by touting the product's gentleness, even when used every day. At what stage in the shampoo's life cycle do you think this promotion took place? What do you think Johnson & Johnson was trying to accomplish by promoting its baby shampoo to adult males?