Chapter 20: Setting the Right Price Introduction to Chapter 20: Setting the Right Price Designed & Prepared by Laura Rush B-books, Ltd. Copyright Cengage Learning 2013 All Rights Reserved 1

Copyright Cengage Learning 2013 Chapter 20 Setting the Right Price Learning Outcomes Describe the procedure for setting the right price Identify the legal and ethical constraints on pricing decisions Explain how discounts, geographic pricing, and other pricing tactics can be used to fine-tune the base price Discuss product line pricing Describe the role of pricing during periods of inflation and recession LO1 LO2 LO3 LO4 LO5 Copyright Cengage Learning 2013 All Rights Reserved

Establish Pricing Goals Chapter 20 Setting the Right Price Establish Pricing Goals Profit-Oriented Sales-Oriented Status Quo Copyright Cengage Learning 2013 All Rights Reserved

Choose a Price Strategy Chapter 20 Setting the Right Price Choose a Price Strategy Price skimming - A firm charges a high introductory price, often coupled with heavy promotion. Penetration Pricing - A firm charges a relatively low price for a product initially as a way to reach the mass market. Status Quo Pricing - Charging a price identical to or very close to the competition’s price. Copyright Cengage Learning 2013 All Rights Reserved

The Legality and Ethics of Price Strategy Chapter 20 Setting the Right Price The Legality and Ethics of Price Strategy Unfair Trade Practices Price Fixing Price Discrimination Predatory Pricing Copyright Cengage Learning 2013 All Rights Reserved

Tactics for Fine-Tuning the Base Price Chapter 20 Setting the Right Price Tactics for Fine-Tuning the Base Price Special pricing tactics Discounts Geographic pricing Copyright Cengage Learning 2013 All Rights Reserved

Discounts, Allowances, Rebates, and Value-Based Pricing Chapter 20 Setting the Right Price Discounts, Allowances, Rebates, and Value-Based Pricing Quantity Discounts Cash Discounts Functional Discounts Seasonal Discounts Promotional Allowances Rebates Zero Percent Financing Value-Based Pricing Markdown Money Copyright Cengage Learning 2013 All Rights Reserved

Pricing Products Too Low Chapter 20 Setting the Right Price Pricing Products Too Low Managers attempt to buy market share through aggressive pricing. Managers tend to make pricing decisions based on current costs, current competitor prices, and short-term share gains rather than on long-term profitability. Copyright Cengage Learning 2013 All Rights Reserved

Copyright Cengage Learning 2013 Chapter 20 Setting the Right Price Geographic Pricing Basing-point pricing Freight absorption Zone pricing Uniform delivered FOB origin pricing Online http://www.ups.com Copyright Cengage Learning 2013 All Rights Reserved

Other Pricing Tactics Single-Price Tactic Chapter 20 Setting the Right Price Other Pricing Tactics Single-Price Tactic All goods offered at the same price Flexible Pricing Different customers pay different price Professional Services Pricing Used by professionals with experience, training or certification Price Lining Several line items at specific price points Leader Pricing Sell 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 Pricing Two separate charges to consume a single good Pay What You Want Allowing customers to pay what they think a product is worth

Businesses Impose Consumer Penalties If... Chapter 20 Setting the Right Price Consumer Penalties An irrevocable loss of revenue is suffered Additional transaction costs are incurred Businesses Impose Consumer Penalties If... Online http://www.princesscruises.com http://www.carnival.com Copyright Cengage Learning 2013 All Rights Reserved

Setting prices for an entire line Chapter 20 Setting the Right Price Product Line Pricing Setting prices for an entire line of products. Online http://www.beauty.com Copyright Cengage Learning 2013 All Rights Reserved

Relationships Among Products Chapter 20 Setting the Right Price Relationships Among Products Complementary Substitutes Neutral Copyright Cengage Learning 2013 All Rights Reserved

Joint Costs Costs that are shared in the manufacturing Chapter 20 Setting the Right Price Joint Costs Costs that are shared in the manufacturing and marketing of several products in a product life. Copyright Cengage Learning 2013 All Rights Reserved

Cost-Oriented Tactics Demand-Oriented Tactics Chapter 20 Setting the Right Price Inflation Cost-Oriented Tactics High Inflation Demand-Oriented Tactics Copyright Cengage Learning 2013 All Rights Reserved

Cost-Oriented Tactics Chapter 20 Setting the Right Price Cost-Oriented Tactics Delayed-quotation pricing Escalator pricing Hold prices constant, but add new fees Copyright Cengage Learning 2013 All Rights Reserved

Demand-Oriented Tactics Chapter 20 Setting the Right Price Demand-Oriented Tactics Strategies to Make Demand More Inelastic Cultivate selected demand Create unique offerings Change the package design Heighten buyer dependence Copyright Cengage Learning 2013 All Rights Reserved

Bundling or Unbundling Chapter 20 Setting the Right Price Recession Value-Based Pricing Bundling or Unbundling Copyright Cengage Learning 2013 All Rights Reserved

Supplier Strategies During Recession Chapter 20 Setting the Right Price Supplier Strategies During Recession Renegotiating contracts Offering help Keeping the pressure on Paring down suppliers Copyright Cengage Learning 2013 All Rights Reserved