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INTRODUCTORY MARKETING Pricing M. Louise Ripley, MBA, PhD

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PRICING LECTURE Questions We Will Answer u How is pricing part of Marketing Strategy? u How is pricing affected by Cost, Demand, Competition? u How do you set a price?

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KEY FACTORS IN PRICING u Objectives u Strategies u Policies and Constraints u Tactics

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PRICING OBJECTIVES u Cost u Demand u Competition

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PRICING OBJECTIVES COST ORIENTED u Emphasis - Cost/Profit l Target Return l Satisfactory Return l Maximize Current Profit l Maximize Long Term Profit

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COST CALCULATION: How real is this price? uEstimate demand function Q = 1000 - 4P uEstimate cost function C = 6000 + 50Q uCalculate total revenues R = P(1000-4P) uCalculate Profits l Z = (1000P - 4P 2 ) - (6000 + 50Q) l Z = -56,000 + 12,000P - 4P 2 = $150

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PRICING OBJECTIVES DEMAND ORIENTED u Emphasis - Demand/Sales u Growth in Market Share u Growth in Dollar or Unit Sales

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PRICING OBJECTIVES DEMAND ORIENTED u How to Grow in Sales

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Skimming the Cream u Conditions: m Demand Not Sensitive to Price m Different Price Segments m Consumers Unaware of Cost m Little Competition

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Skimming the Cream - High Price u MAYORS FOUNTAIN PEN $500? Their Advertising Claim: For the average lifestyle, the average writing instrument is perfectly adequate. But while most pens are designed for signing postcards, ours are designed for signing peace treaties.

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Skimming the Cream continuing the strategy... u High Price First u Lower Price Later l Dupont: Cellophane, Nylon l Polaroid: Camera

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PRICING OBJECTIVES DEMAND ORIENTED u How to Grow in Sales l Skimming the Cream l Penetration Pricing

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PRICING OBJECTIVES DEMAND ORIENTED u Penetration Pricing - Low Price u Conditions: m Demand is Price Sensitive m No Different Price Segments m Product Not A Status Item m Competition Likely

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Penetration Pricing u Regular Penetration Pricing The Colt Car Sells at regular low price

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Penetration Pricing Special Condition Nabiscos New Giggles Cookies 20 cents off coupon for a short time only

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PRICING OBJECTIVES COMPETITION ORIENTED u Emphasis - Competition/Status Quo l Meeting the Competition l Non-Price Competition

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BREAK EVEN ANALYSIS BEP = $30,000/($1.20-$0.80) = 75,000 units $Sells at $1.20 VC = $0.80 FC = $30,000 Units Break Even Point = 75,000 units

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PRICING STRATEGIES u Mixing Price with the Other Variables uLiterally Thousands of Combinations

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Marketing Mix Combinations Just One: Price and Quality P High MediumLow Q HighP remium Penetration Big Bargain Medium Overpriced AverageBargain Low Hit & Run ShoddyCheap

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PRICING STRATEGIES u Cost u Demand u Competition

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PRICING STRATEGIES COST ORIENTED u Target Profit Pricing uMark-Up Pricing

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PRICING STRATEGIES COST ORIENTED u Problems l Difficulties Determining Cost

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Mark- Up Pricing Problems: What is Mark-up? 13%? 53%?

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PRICING STRATEGIES COST ORIENTED u Problems l Difficulties Determining Cost l Legal Problems

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PRICE FIXING

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PRICING STRATEGIES DEMAND ORIENTED u Perceived Value

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PRICING STRATEGIES DEMAND ORIENTED u Perceived Value u Demand Differential

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PRICING STRATEGIES DEMAND ORIENTED u Perceived Value u Demand Differential l Customer Form

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PRICING STRATEGIES DEMAND ORIENTED u Perceived Value u Demand Differential l Customer Form

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PRICING STRATEGIES DEMAND ORIENTED u Perceived Value u Demand Differential l Customer Form l Product Form

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LEGAL PRODUCT FORM PRICE DISCRIMINATION u TV without stereo sells for $250 u TV with $5 worth of stereo parts sells for $350

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PRICING STRATEGIES DEMAND ORIENTED u Perceived Value u Demand Differential l Customer Form l Product Form l Place

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PRICING STRATEGIES DEMAND ORIENTED u Perceived Value u Demand Differential l Customer Form l Product Form l Place

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PRICING STRATEGIES DEMAND ORIENTED u Perceived Value u Demand Differential l Customer Form l Product Form l Place l Time

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PRICING STRATEGIES DEMAND ORIENTED u Perceived Value u Demand Differential l Customer Form l Product Form l Place l Time

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PRICING STRATEGIES COMPETITION ORIENTED u Going Rate uSealed Bid

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PRICING OBJECTIVES and STRATEGIES u Cost u Demand u Competition

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PRICING POLICIES AND CONSTRAINTS u Management u Distributors u Competitors u Suppliers u Company Executives u Stockholders u Government regulations

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PRICING TACTICS u Psychological Pricing m Odd - Even: $69.95 m Price Lining

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PRICE LINING MENS SUITS u as seen by the wearer of a $500 suit: cheapGOODoverpriced $300 $500 $700 u as seen after a 10% price increase: cheapGOODoverpriced $330 $550 $770

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PRICING TACTICS u Psychological Pricing l Odd - Even Pricing l Price Lining l Prestige Pricing

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PRESTIGE PRICING BAYER

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PRICING TACTICS u Psychological Pricing l Odd - Even Pricing l Price Lining l Prestige Pricing l Promotional Pricing

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ILLEGAL PROMOTIONAL PRICING Original Price$250 Illegal Pricing: Was $350 Now Only $300!!

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PRICING TACTICS u Discount Pricing l Quantity l Cash l Trade/Functional l Seasonal l Consumer - everything else?

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KEY FACTORS IN PRICING u Objectives l Cost, Demand, Competition u Strategies l Cost, Demand, Competition u Policies and Constraints u Tactics

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PRICING LECTURE SUMMARY u How is pricing part of Marketing Strategy? u How is pricing affected by Cost, Demand, Competition? u How do you set a price? u Real World Story - Earmuffs tape

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