15-1 CHAPTER STRATEGIC PRICING METHODS 15

15-2 LEARNING OBJECTIVES Identify three methods that firms use to set their prices. Describe the difference between an everyday low price strategy (EDLP) and a high/low strategy. Explain the difference between a price skimming and a market penetration pricing strategy. Identify tactics used to reduce prices to consumers. Identify tactics used to reduce prices to businesses. List pricing practices that have the potential to deceive customers. Strategic Pricing Methods LO1 LO2 LO3 LO4 LO5 LO6

15-3 Pricing Strategies Cost-Based Competitor-Based Value- Based

15-4 Cost-Based Methods Cost-base pricing methods start with cost All costs calculated on a per unit basis Assumes costs don’t vary for different levels of production Ryan McVay/Getty Images

15-5 Competition-Based Methods  Set prices to signal information of how product compares with competitors  Premium pricing Zillow AP Photo/Matthias Rietschel

15-6 Value-Based Methods Courtesy Rolex USA  Setting prices that focus on the overall value of the product Setting prices that focus on the overall value of the product  Consumer perceptions Consumer perceptions Funny Commercial: Beauty is Nothing without Brains

15-7 CHECK YOURSELF 1.What are the three different strategies for setting pricing? 2.How can you use value-based strategies for setting prices?

15-8 Pricing Strategies Everyday low pricing (EDLP) High/Low Pricing

15-9 vs.. Everyday low pricing (EDLP) High/low pricing Everyday Low Pricing vs.. High/Low Pricing Create value in different waysEDLP saves search costs of finding lowest overall pricesHigh/low provides the thrill of the chase for the lowest price Photodisc Collection/Getty Images ©Lars A Niki

15-10 Consumers’ Use of Reference PricesReference Prices External reference price Internal reference price Photodisc Collection/Getty Images

15-11 New Product Pricing Strategies Market Penetration PricingPrice skimming Courtesy Ford Motor Company.

15-12 CHECK YOURSELF 1.Explain the difference between EDLP and high/low pricing. 2.What pricing strategies should be considered when introducing a new product?

15-13 Pricing Tactics Aimed at Consumers Mark downs Quantity Discounts Seasonal Discounts CouponsRebatesLeasing Price Bundling Leader Pricing

15-14 Business Pricing Tactics and Discounts Seasonal discounts Cash discounts Vendor Allowances Quantity discounts Uniform delivered vs. Zone pricing

15-15 CHECK YOURSELF 1.What are some consumer-oriented pricing tactics? 2.What are some B2B-oriented pricing tactics?

15-16 Legal Aspects and Ethics of Pricing Deceptive or illegal price advertising Predatory pricing Price discrimination Price fixing Legal Aspects and Ethics of Pricing

15-17 CHECK YOURSELF 1.What common pricing practices are considered to be illegal or unethical?

15-18 Return to slide A cumulative quantity discount uses the amount purchased over a specified time period and usually involves several transactions. Glossary

15-19 Return to slide Horizontal price fixing occurs when competitors that produce and sell competing products collude, or work together, to control prices, effectively taking price out of the decision process for consumers. Glossary

15-20 Return to slide Price skimming is a strategy that occurs in many markets, and particularly for new and innovative products or services, and involves consumers being willing to pay a higher price to obtain the new product or service. Glossary

15-21 Return to slide A reference price is the price against which buyers compare the actual selling price of the product and that facilitates their evaluation process. Glossary

15-22 Return to slide With a uniform delivered pricing tactic, the shipper charges one rate, no matter where the buyer is located. Glossary

15-23 Return to slide Vertical price fixing occurs when parties at different levels of the same marketing channel collude to control the prices passed on to consumers. Glossary