Presentation on theme: "Setting the Right Price"— Presentation transcript:
1 Setting the Right Price Lamb, Hair, McDanielChapter 18 Setting the Right PriceCHAPTER 20Setting the Right Price
2 How to Set a Price on a Product or Service Chapter 18 Setting the Right PriceFine tune price with pricing tacticsChoose a price strategyEstimate demand, costs, and profitsEstablish pricing goalsResults lead to the right price
3 Setting the Right Price Chapter 18 Setting the Right PriceSetting the Right PriceEstablish price goalsLow $High $Estimate demand, costs, and profitsChoose a price strategySkimmingStatus quoPenetrationFine-tune base priceEvaluate resultsSet price $x.yy
4 Establish Pricing Goals Chapter 18 Setting the Right PriceProfit-OrientedSales-OrientedStatus Quo
5 Choose a Price Strategy Chapter 18 Setting the Right PriceStatus Quo PricingPrice SkimmingPenetration PricingCharging a price identical to or very closeto the competition’s price.A firm charges a high introductory price,often coupled with heavy promotion.A firm charges a relatively low price for aproduct initially as a way to reach themass market.
6 The Legality of Price Strategy Chapter 18 Setting the Right PriceThe Legality of Price StrategyUnfair Trade PracticesPrice FixingPrice DiscriminationPredatory Pricing
7 Price Discrimination There must be price discrimination. Chapter 18 Setting the Right PricePrice DiscriminationThe Robinson-Patman Act of 1936: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.
8 Predatory Pricing Predatory Pricing Chapter 18 Setting the Right PricePredatory PricingPredatory PricingThe practice of charging a very low price for a product with the intent of driving competitors out of business or out of a market.
9 Tactics for Fine-Tuning the Base Price Chapter 18 Setting the Right PriceTactics for Fine-Tuning the Base PriceSpecial pricing tacticsDiscountsGeographic pricing
10 Discounts, Allowances, Rebates, and Value-Based Pricing Chapter 18 Setting the Right PriceDiscounts, Allowances, Rebates, and Value-Based PricingQuantity DiscountsCash DiscountsFunctional DiscountsSeasonal DiscountsPromotional AllowancesRebatesZero Percent FinancingValue-Based Pricing
11 Value-Based PricingChapter 18 Setting the Right PriceSetting 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 Geographic Pricing FOB Origin Pricing Uniform Delivered Zone Pricing Chapter 18 Setting the Right PriceFOB OriginPricingUniformDeliveredZone PricingFreightAbsorptionBasing-PointThe 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 tocustomers 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 buyersthe freight costs from that point.
13 Other Pricing Tactics Single-Price Tactic Chapter 18 Setting the Right PriceSingle-Price TacticAll goods offered at the same priceFlexible PricingDifferent customers pay different priceProfessionalServices PricingUsed by professionals with experience,training or certificationPrice LiningSeveral line items at specific price pointsLeader PricingSell product at near or below costBait PricingLure customers through false or misleadingprice advertisingOdd-Even PricingOdd-number prices imply bargainEven-number prices imply qualityPrice BundlingCombining two or more products in asingle packageTwo-Part PricingTwo separate charges to consume a single good
14 Fine-Tuning the Base Price Chapter 18 Setting the Right PriceFine-Tuning the Base PricePricing TacticsDiscountsGeographicOther TacticsConsumer PenaltiesQuantity • cumulative • noncumulativeFOB originSingle priceFlexibleCashUniform deliveredProfessional servicesFunctional (trade)ZonePrice liningSeasonalLeaderPromotional (trade)Freight absorptionBaitRebateBasing- pointOdd–even0% FinancingBundlingValue-basedUnbundlingTwo-part
15 Pricing During Inflation and Recession Chapter 18 Setting the Right PricePricing During Inflation and RecessionInflationRecessionContract product linesValue-basedCost-oriented tacticsPriceBundlingDelayed- quotation pricingUnbundlingEscalator pricingProductDemand-oriented tacticsNew productsSelect demandNew product categoriesSuppliersUnique offeringRenegotiate contractsChange package designOffer helpIncrease buyer dependenceKeep pressure on suppliersReduce number of suppliers
16 Ch 20 Discussion Questions Describe the procedure for setting the right price in marketing.Explain the four major legal and ethical concerns in pricing decisions.What is pricing tactics? Explain how discounts, geographic pricing, and other special pricing tactics can be used to fine-tune the base price.Explain how pricing decisions change during periods of inflation and recession.16