2Introduction to Pricing (1) Pricing strategy (nothing you buy is priced too high)Definition: value given up for benefits firm offers (fuzzy: good deal varies; real estate)Positive: easiest “p” to change; determines revenuesNegative: difficult to evaluate; different to gain advantage
3Introduction to Pricing (2) Pricing Strategy (cont…)Reference price: consumers’ ideas of what price “should” be (What for gallon gas? CD? Movie?)FlexibilityAdministered pricesFirms decide on price vs mkt. (fluctuation is relatively uncommon)Channel conflict (MSRP)
4Introduction to Pricing (3) Pricing Strategy (cont…)FlexibilityOne price: same price to all under same conditionsFlexibility: price differs by customer; negotiationProblem: dissatisfaction; searching for deals (texts)Easier now – tech (freq. Shopper)“Name your price” (PriceLine)(-)Some dislike (autos)Customer satisfaction“Habit” forming (U.S. autos)
6Pricing Objectives (1)Sales Oriented: amount sold in units, dollars, mkt share – no ref. to profitMarket share: part of industry/area salesMeasurement is easyProblem: must have some profit (large sales profits; Eastern airlines; dot-coms)
7Pricing Objectives (2) Status Quo Oriented: Happy where we are (problem: not strategic; Taco Bell)Form: non price competition; meet competitionEx. avoid price warFocus on other p’sWhy? (emphasize quality; & only one low price)What products can you think of??
9Pricing Objectives (3) Profit Oriented Target return Profit rel. to financial yardstick (sales, invest, industry avg.)(+) objective (driven by quarterly earnings)Satisfactory profits: lifestyle, utilitiesProfit maximization: most earnings possible…Not necessarily high price (W-Mart; mass merch. Concept)Should be goal of businessTrick: how do you know?
10Pricing Objectives (4) Allowances and Discounts Awarded for giving something up or doing it yourselfFormsSale (500) temporary reduction in list price; adjust inventory quickly (excitement)Quantity disct: decrease for buying moreMay be price cuts or additional goods (movie rentals; freq. Flier)Cumulative:For buying over time (Subway;buy ten, one free)LoyaltyNon-cumulative:For one purchaseDecrease storage
11Pricing Objectives (5) Allowances and Discounts (cont…) ad allowance: price reduction for downstream adsstocking allowancepay for retail space (Wal-Mart)mainly for new (justify: costs)
12Pricing Objectives (6) Allowances and Discounts (cont…) Push money/spiffs/p.m.Retailer incentives for aggressive selling (target: sales force)Question: incentivesTrade-in: price reduction for old itemsSeasonal: unpopular times (storage; heating oil)
13Payment Terms Net: full amount Cash Discount: reduction to pay early 2% discount if paid w/in 10 days;full payment due in 30 (BIG take anyway)
14Summary Objectives: sales – status quo - profit Allowances & discounts Administered vs. flexibleRead:Robinson-Patman Act (pg )Skimming/Penetration Pricing (pg )