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1 Lamb, Hair, McDaniel CHAPTER 20 Setting the Right Price.

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1 1 Lamb, Hair, McDaniel CHAPTER 20 Setting the Right Price

2 2 How to Set a Price on a Product or Service Fine tune price with pricing tactics Choose a price strategy Estimate demand, costs, and profits Establish pricing goals Results lead to the right price

3 3 Setting the Right Price Estimate demand, costs, and profits Establish price goals Choose a price strategy Fine-tune base price Set price $x.yy Evaluate results Low $ High $ Skimming Status quo Penetration

4 4 Establish Pricing Goals Profit-Oriented Sales-Oriented Status Quo

5 5 Choose a Price Strategy Status Quo Pricing Price Skimming Penetration Pricing Charging a price identical to or very close to the competitions price. Charging a price identical to or very close to the competitions price. A firm charges a high introductory price, often coupled with heavy promotion. A firm charges a high introductory price, often coupled with heavy promotion. A firm charges a relatively low price for a product initially as a way to reach the mass market. A firm charges a relatively low price for a product initially as a way to reach the mass market.

6 6 The Legality of Price Strategy Unfair Trade Practices Price Fixing Price Discrimination Predatory Pricing

7 7 Price Discrimination There must be price discrimination. Transaction must occur in interstate commerce. Seller must discriminate by price among two or more purchasers. Products sold must be commodities or tangible goods. Products sold must be of like grade and quality. There must be significant competitive injury. The Robinson-Patman Act of 1936:

8 8 Predatory Pricing The practice of charging a very low price for a product with the intent of driving competitors out of business or out of a market. Predatory Pricing

9 9 Tactics for Fine-Tuning the Base Price Special pricing tactics Discounts Geographic pricing

10 10 Discounts, Allowances, Rebates, and Value-Based Pricing Quantity Discounts Cash Discounts Functional Discounts Seasonal Discounts Promotional Allowances Rebates Zero Percent Financing Value-Based Pricing

11 11 Value-Based Pricing Setting the price at a level that seems to the customer to be a good price compared to the prices of other options. Value-Based Pricing

12 12 Geographic Pricing FOB Origin Pricing Uniform Delivered Pricing Zone Pricing Freight Absorption Pricing Basing-Point Pricing The buyer absorbs the freight costs from the shipping point (free on board). The seller pays the freight charges and bills the purchaser an identical, flat freight charge. The U.S. is divided into zones, and a flat freight rate is charged to customers in a given zone. The seller pays for all or part of the freight charges and does not pass them on to the buyer. The seller designates a location as a basing point and charges all buyers the freight costs from that point.

13 13 Other Pricing Tactics Single-Price TacticAll goods offered at the same price Flexible PricingDifferent customers pay different price Professional Services Pricing Used by professionals with experience, training or certification Price LiningSeveral line items at specific price points Leader PricingSell product at near or below cost Bait Pricing Lure customers through false or misleading price advertising Odd-Even Pricing Odd-number prices imply bargain Even-number prices imply quality Price Bundling Combining two or more products in a single package Two-Part PricingTwo separate charges to consume a single good

14 14 Fine-Tuning the Base Price Discounts Geographic Other Tactics Consumer Penalties Single price Flexible Professional services Price lining Leader Bait Odd–even Bundling Unbundling Two-part Uniform delivered Zone Freight absorption Basing- point Quantity cumulative noncumulative Cash Functional (trade) Seasonal Promotional (trade) Rebate 0% Financing Value-based Pricing Tactics FOB origin

15 15 Pricing During Inflation and Recession Recession Inflation Contract product lines Delayed- quotation pricing Escalator pricing Select demand Unique offering Change package design Increase buyer dependence Cost-oriented tactics Demand-oriented tactics Price Product Suppliers Value-based Bundling Unbundling New products New product categories Renegotiate contracts Offer help Keep pressure on suppliers Reduce number of suppliers

16 Ch 20 Discussion Questions 1.Describe the procedure for setting the right price in marketing. 2.Explain the four major legal and ethical concerns in pricing decisions. 3.What is pricing tactics? Explain how discounts, geographic pricing, and other special pricing tactics can be used to fine-tune the base price. 4.Explain how pricing decisions change during periods of inflation and recession.


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