Chapter 26 marketing

Chapter 26 (section 1)

Basic pricing concepts Demand oriented pricing Based on consumer perception Heavily Reliant upon supply & demand Competition oriented pricing Based on competitor pricing Below, in line (going rate pricing), above (premium pricing) No relation to cost or supply & Demand Cost oriented pricing Based on cost (variable & fixed) Markup Resellers + markup

Costs? Supplier (B2B) Manufacturer / distributer (b2b) Labor Capital (mining / drilling / planting / harvesting) Raw Material Fixed costs / variable costs Markup / Profit Manufacturer / distributer (b2b) Capital (Assembly / manufacturing) Material Markup / profit Retailer (consumer / b2b) labor Capital (sales & displays) Wholesale price (Material)

equations Markup = retail price – wholesale price Retail price = wholesale price + markup Profit = retail price – wholesale cost – shipping – taxes – other related costs

Establishing price base Cost oriented pricing Understand the price floor (bottom / breakeven) for a product Demand oriented pricing Establishes a price range (price floor – price ceiling) Competition oriented pricing Establishes a set price with wiggle room to drop the price for sales

One price vs. flexible price policy Customers are charged the same price Retail stores employ this policy i.e. iphone (store may offer different incentives though like store credit) Flexible price Customers pay different prices based on type or quantity Used cars Pricing tiers based on quantity (wholesale)

Product life cycle Introduction Growth Maturity Decline / reinvention Price skimming – high price Price penetration – low price (everyday low price) Growth Price skimming – become flexible based on S & D Price penetration – stays constant for the most part Maturity Price skimming – price decreases Price penetration – price decrease Decline / reinvention Price penetration – price decreases

Time out! Think of a product (not a phone) Think about when that product was first introduced How much was it? Penetration pricing or price skimming? Think about when that product increased in sales Think about when that product matured

Chapter 26 (Section 2)

Product mix strategy Price lining Captive product By-product T-shirts 5 10 15 Captive product Printer $100 Ink $100 By-product Landfill Selling off methane to power electrical plants or trucks Bundle pricing Iphone comes with imovie Computer comes with one year of free anti-virus

Geographical pricing City? Suburb? Rural? Northern united states Southern united states New york & california vs. iowa

International pricing Currency exchange Shipping Distribution Availability culture

Segmented pricing Time Location Design Buyer identification or demographic

Psychological pricing Odd-even pricing 1.99 7.97 1.94 10.96 Prestige pricing Premium product = premium pricing Multiple unit pricing 3 tennis balls for 3 dollars (hard to find individual tennis balls / golf balls) Everyday low prices Consistent low prices = no sales / discounts Loss leader Xbox / iphone / black Friday sale Special event pricing This week only / holiday sale / seasonal discount Rebates & coupons Manufacturer incentives to buy a product – new cars

Discounts & allowances Cash discount Quantity discount Trade discount Seasonal discount allowances

Determining prices Establish pricing objectives Determine costs Estimate demand Study the competition Decide on pricing Set prices

Pricing technology Vehicles Smart pricing Magazines Newspapers Posters/signage Smart pricing Utilizing big data & software Communicating pricing to consumers Electronic shelves Digital price labels (change easily)