2 Introduction to Pricing (1) Pricing strategy (nothing you buy is priced too high)Definition: value given up for benefits firm offers (fuzzy: good deal varies; real estate)Positive: easiest “p” to change; determines revenuesNegative: difficult to evaluate; different to gain advantage
3 Introduction to Pricing (2) Pricing Strategy (cont…)Reference price: consumers’ ideas of what price “should” be (What for gallon gas? CD? Movie?)FlexibilityAdministered pricesFirms decide on price vs mkt. (fluctuation is relatively uncommon)Channel conflict (MSRP)
4 Introduction to Pricing (3) Pricing Strategy (cont…)FlexibilityOne price: same price to all under same conditionsFlexibility: price differs by customer; negotiationProblem: dissatisfaction; searching for deals (texts)Easier now – tech (freq. Shopper)“Name your price” (PriceLine)(-)Some dislike (autos)Customer satisfaction“Habit” forming (U.S. autos)
6 Pricing Objectives (1)Sales Oriented: amount sold in units, dollars, mkt share – no ref. to profitMarket share: part of industry/area salesMeasurement is easyProblem: must have some profit (large sales profits; Eastern airlines; dot-coms)
7 Pricing Objectives (2) Status Quo Oriented: Happy where we are (problem: not strategic; Taco Bell)Form: non price competition; meet competitionEx. avoid price warFocus on other p’sWhy? (emphasize quality; & only one low price)What products can you think of??
9 Pricing Objectives (3) Profit Oriented Target return Profit rel. to financial yardstick (sales, invest, industry avg.)(+) objective (driven by quarterly earnings)Satisfactory profits: lifestyle, utilitiesProfit maximization: most earnings possible…Not necessarily high price (W-Mart; mass merch. Concept)Should be goal of businessTrick: how do you know?
10 Pricing Objectives (4) Allowances and Discounts Awarded for giving something up or doing it yourselfFormsSale (500) temporary reduction in list price; adjust inventory quickly (excitement)Quantity disct: decrease for buying moreMay be price cuts or additional goods (movie rentals; freq. Flier)Cumulative:For buying over time (Subway;buy ten, one free)LoyaltyNon-cumulative:For one purchaseDecrease storage
11 Pricing Objectives (5) Allowances and Discounts (cont…) ad allowance: price reduction for downstream adsstocking allowancepay for retail space (Wal-Mart)mainly for new (justify: costs)
12 Pricing Objectives (6) Allowances and Discounts (cont…) Push money/spiffs/p.m.Retailer incentives for aggressive selling (target: sales force)Question: incentivesTrade-in: price reduction for old itemsSeasonal: unpopular times (storage; heating oil)
13 Payment Terms Net: full amount Cash Discount: reduction to pay early 2% discount if paid w/in 10 days;full payment due in 30 (BIG take anyway)
14 Summary Objectives: sales – status quo - profit Allowances & discounts Administered vs. flexibleRead:Robinson-Patman Act (pg )Skimming/Penetration Pricing (pg )