Chapter 17 - Effective Marketing, 3e

Chapter 17 - Effective Marketing, 3e

Chapter Seventeen Pricing Strategies and Tactics Objectives Identify various pricing strategies Discuss differential pricing strategies Describe skimming and penetration pricing Demonstrate competitions effect on pricing Discuss inflations effect on pricing Discuss product-line pricing strategies Explore psychological aspects of price Demonstrate geographys influence on pricing Discuss varied pricing tools Overview legal restrictions on pricing Identify a major ethical issue related to price Pricing Pricing Strategies Strategies Differential Differential pricing

pricing strategies strategies Competitive Competitive pricing pricing strategies strategies Product-line Product-line pricing pricing strategies strategies Psychological Psychological and and image image pricing pricing strategies strategies Distribution-based Distribution-based pricing pricing strategies strategies

Differential pricing strategies Different buyers pay different prices r fo s it es un bl 0 00 ru 10 ,0 an $2 si us R

5 15 ch ea $24.9 5 $2 2. 00 Differential Differential Pricing Pricing Strategies Strategies $24.95 $2 2 10 .0

0 0 its un 5 15 0 es bl ru 00 2, n ia

r$ fo ss Ru ch ea Types: Types: Variable Variable Pricing Pricing Second-Market Second-Market Discounting Discounting Skimming Skimming Periodic

Periodic discounting discounting Random Random discounting discounting Price Skimming Pricing high, usually at the beginning of a products life Examples: personal computers CDs electronics Competitive Competitive Pricing Pricing Strategies Strategies

Types: Types: Meeting Meeting competition competition Undercutting Undercutting competition competition Price Price leadership leadership Follow Follow the the leader leader Penetration

Penetration pricing pricing Predatory Predatory pricing pricing Traditional Traditional Inflationary Inflationary Penetration Pricing Low Low introductory introductory price price to to establish establish product product quickly

quickly in in market market When When to to use: use: Elastic Elastic demand demand Economies Economies of of scale scale Threat Threat of

of strong strong competition competition Mass Mass market market Product-Line Product-Line Pricing Pricing Strategies Strategies Captive pricing Leader and Bait pricing Price lining $45.99 $39.99 $24.99 $19.99 Price-bundling & Multi-unit

Psychological Psychological & & Image Image Pricing Pricing Reference Pricing Regular price: $45 Now Only: $25 $1.87 $4.95 $9.99 Prestige Pricing $175 $1000

Odd/Even Pricing Distribution-Based Distribution-Based Pricing Pricing X X F.O.B Delivered Zone Uniform Basing-point Markups Markups Manufacturer

Wholesaler Retailer Cost $20.00 20% markup $ 5.00 Selling price $25.00 Cost $25.00 Cost $29.41 15% markup $ 4.41 41% markup $20.59 Selling price $29.41 Selling price $50.00 Establishing Establishing Exact Exact Prices Prices

Markup on Selling Price and on Cost Cost-Plus Method Break-even Analysis Target Return Pricing Average Cost Establishing Establishing Exact Exact Prices Prices Markup on Selling Price or Costs:

Amount added on -----------------------Selling price = % markup Cost-Plus Method: Cost + Amount added on = Price Establishing Establishing Exact Exact Prices Prices Average-cost method: All costs Average cost ------------------------ = of a single unit # Units produced Target Return Pricing: Fixed costs + Target return

Price -------------------------------------- = per unit Units to be sold Cost &Revenue ($) Break-Even Break-Even Analysis Analysis Total Revenues s s Lo Loss t fi o

r P Profit Total Costs Breakeven point Units produced & sold Fixed Costs Price Price Adjustments Adjustments

Cash Cash discounts discounts Trade Trade discounts discounts Quantity Quantity discounts discounts Seasonal Seasonal discounts discounts Chain Chain discounts discounts Promotional Promotional allowances allowances

Pricing and the Law ROBINSON-PATMAN ACT OF 1936 Discriminatory prices illegal unless. Charged to meet competition Justified by cost savings Pricing and the Law Fair Trade Practices Act and their repeal in 1975 States: manufacturers may fix final selling price Federal govt: illegal if good sold in different state Pricing and Ethical issues Are corporate social policy and corporate profit

motive compatible? Review Identify various pricing strategies Discuss differential pricing strategies Describe skimming and penetration pricing Demonstrate competitions effect on pricing Discuss inflations effect on pricing Discuss product-line pricing strategies Explore psychological aspects of price Demonstrate geographys influence on pricing Discuss varied pricing tools Overview legal restrictions on pricing Identify a major ethical issue related to price

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