Setting the Right Price Lamb, Hair, McDaniel Chapter 18 Setting the Right Price CHAPTER 20 Setting the Right Price

How to Set a Price on a Product or Service Chapter 18 Setting the Right Price Fine tune price with pricing tactics Choose a price strategy Estimate demand, costs, and profits Establish pricing goals Results lead to the right price

Setting the Right Price Chapter 18 Setting the Right Price Setting the Right Price Establish price goals Low $ High $ Estimate demand, costs, and profits Choose a price strategy Skimming Status quo Penetration Fine-tune base price Evaluate results Set price $x.yy

Establish Pricing Goals Chapter 18 Setting the Right Price Profit-Oriented Sales-Oriented Status Quo

Choose a Price Strategy Chapter 18 Setting the Right Price Status Quo Pricing Price Skimming Penetration Pricing Charging a price identical to or very close to the competition’s price. 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.

The Legality of Price Strategy Chapter 18 Setting the Right Price The Legality of Price Strategy Unfair Trade Practices Price Fixing Price Discrimination Predatory Pricing

Price Discrimination There must be price discrimination. Chapter 18 Setting the Right Price Price Discrimination The 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.

Predatory Pricing Predatory Pricing Chapter 18 Setting the Right Price Predatory Pricing 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.

Tactics for Fine-Tuning the Base Price Chapter 18 Setting the Right Price Tactics for Fine-Tuning the Base Price Special pricing tactics Discounts Geographic pricing

Discounts, Allowances, Rebates, and Value-Based Pricing Chapter 18 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

Value-Based Pricing Chapter 18 Setting the Right Price 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

Geographic Pricing FOB Origin Pricing Uniform Delivered Zone Pricing Chapter 18 Setting the Right Price FOB Origin Pricing Uniform Delivered Zone Pricing Freight Absorption Basing-Point 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.

Other Pricing Tactics Single-Price Tactic Chapter 18 Setting the Right Price 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

Fine-Tuning the Base Price Chapter 18 Setting the Right Price Fine-Tuning the Base Price Pricing Tactics Discounts Geographic Other Tactics Consumer Penalties Quantity • cumulative • noncumulative FOB origin Single price Flexible Cash Uniform delivered Professional services Functional (trade) Zone Price lining Seasonal Leader Promotional (trade) Freight absorption Bait Rebate Basing- point Odd–even 0% Financing Bundling Value-based Unbundling Two-part

Pricing During Inflation and Recession Chapter 18 Setting the Right Price Pricing During Inflation and Recession Inflation Recession Contract product lines Value-based Cost-oriented tactics Price Bundling Delayed- quotation pricing Unbundling Escalator pricing Product Demand-oriented tactics New products Select demand New product categories Suppliers Unique offering Renegotiate contracts Change package design Offer help Increase buyer dependence Keep pressure on suppliers Reduce number of suppliers

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