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Chapter Eleven
Pricing Strategies
Copyright © 2009 Pearson Education, Inc.
Publishing as Prentice Hall
Chapter 11- slide 1
Pricing Strategies
Topic Outline
•
•
•
•
New-Product Pricing Strategies
Product Mix Pricing Strategies
Price Adjustment Strategies
Price Changes
Copyright © 2010 Pearson Education, Inc.
Publishing as Prentice Hall
Chapter 11- slide 2
New-Product Pricing
Strategies
Pricing Strategies
• Market-skimming pricing
• Market-penetration pricing
Copyright © 2010 Pearson Education, Inc.
Publishing as Prentice Hall
Chapter 11- slide 3
New-Product Pricing
Strategies
Market-skimming pricing is a strategy with high
initial prices to “skim” revenue layers from the
market
• Product quality and image must support the
price
• Buyers must want the product at the price
• Costs of producing the product in small volume
should not cancel the advantage of higher prices
• Competitors should not be able to enter the
market easily
Copyright © 2010 Pearson Education, Inc.
Publishing as Prentice Hall
Chapter 11- slide 4
New-Product Pricing
Strategies
Pricing Strategies
Market-penetration pricing sets a low initial
price in order to penetrate the market
quickly and deeply to attract a large
number of buyers quickly to gain market
share
• Price sensitive market
• Inverse relationship of production and
distribution cost to sales growth
• Low prices must keep competition out of
the market
Copyright © 2010 Pearson Education, Inc.
Publishing as Prentice Hall
Chapter 11- slide 5
Pricing Strategies
Product
line pricing
Optionalproduct
pricing
By-product
pricing
Copyright © 2010 Pearson Education, Inc.
Publishing as Prentice Hall
Captiveproduct
pricing
Product
bundle
pricing
Chapter 11- slide 6
Product Mix Pricing Strategies
Pricing Strategies
Product line pricing takes into account the
cost differences between products in the
line, customer evaluation of their features,
and competitors’ prices
Optional product pricing takes into account
optional or accessory products along with
the main product
Copyright © 2010 Pearson Education, Inc.
Publishing as Prentice Hall
Chapter 11- slide 7
Product Mix Pricing Strategies
Pricing Strategies
Captive-product pricing involves products that
must be used along with the main product
• Two-part pricing involves breaking the
price into:
– Fixed fee
– Variable usage fee
Copyright © 2010 Pearson Education, Inc.
Publishing as Prentice Hall
Chapter 11- slide 8
Price Mix Pricing Strategies
Pricing Strategies
By-product pricing refers to products with little
or no value produced as a result of the main
product. Producers will seek little or no profit
other than the cost to cover storage and
delivery.
Copyright © 2010 Pearson Education, Inc.
Publishing as Prentice Hall
Chapter 11- slide 9
Price Mix Pricing Strategies
Pricing Strategies
Product bundle pricing combines several
products at a reduced price
Copyright © 2010 Pearson Education, Inc.
Publishing as Prentice Hall
Chapter 11- slide 10
Price-Adjustment Strategies
Discount and
allowance
pricing
Psychological
pricing
Geographic
pricing
Copyright © 2010 Pearson Education, Inc.
Publishing as Prentice Hall
Segmented
pricing
Promotional
pricing
Dynamic
pricing
International
pricing
Chapter 11- slide 11
Price-Adjustment Strategies
Pricing Strategies
Discount and allowance pricing reduces
prices to reward customer responses such
as paying early or promoting the product
• Discounts
• Allowances
Copyright © 2010 Pearson Education, Inc.
Publishing as Prentice Hall
Chapter 11- slide 12
Price-Adjustment Strategies
Pricing Strategies
Segmented pricing is used when a company
sells a product at two or more prices even
though the difference is not based on cost
Copyright © 2010 Pearson Education, Inc.
Publishing as Prentice Hall
Chapter 11- slide 13
Price-Adjustment Strategies
Segmented Pricing
To be effective:
• Market must be segmentable
• Segments must show different degrees
of demand
• Watching the market cannot exceed the
extra revenue obtained from the price
difference
• Must be legal
Copyright © 2010 Pearson Education, Inc.
Publishing as Prentice Hall
Chapter 11- slide 14
Price-Adjustment Strategies
Pricing Strategies
Psychological pricing occurs when sellers
consider the psychology of prices and not
simply the economics
• Reference prices are prices that buyers
carry in their minds and refer to when
looking at a given product
– Noting current prices
– Remembering past prices
– Assessing the buying situations
Copyright © 2010 Pearson Education, Inc.
Publishing as Prentice Hall
Chapter 11- slide 15
Price-Adjustment Strategies
Pricing Strategies
Promotional pricing is when prices are
temporarily priced below list price or cost to
increase demand
• Loss leaders
• Special event pricing
• Cash rebates
• Low-interest financing
• Longer warrantees
• Free maintenance
Copyright © 2010 Pearson Education, Inc.
Publishing as Prentice Hall
Chapter 11- slide 16
Price-Adjustment Strategies
Pricing Strategies
Risks of promotional pricing
• Used too frequently, and copies by
competitors can create “deal-prone”
customers who will wait for promotions
and avoid buying at regular price
• Creates price wars
Copyright © 2010 Pearson Education, Inc.
Publishing as Prentice Hall
Chapter 11- slide 17
Price-Adjustment Strategies
Pricing Strategies
Geographical pricing is used for customers in
different parts of the country or the world
• FOB pricing
• Uniformed-delivery pricing
• Zone pricing
• Basing-point pricing
• Freight-absorption pricing
Copyright © 2010 Pearson Education, Inc.
Publishing as Prentice Hall
Chapter 11- slide 18
Price-Adjustment Strategies
Pricing Strategies
•
FOB (free on board) pricing means that
the goods are delivered to the carrier and
the title and responsibility passes to the
customer
•
Uniformed delivery pricing means the
company charges the same price plus
freight to all customers, regardless of
location
Copyright © 2010 Pearson Education, Inc.
Publishing as Prentice Hall
Chapter 11- slide 19
Price-Adjustment Strategies
Pricing Strategies
•
Zone pricing means that the company sets
up two or more zones where customers
within a given zone pay a single total price
•
Basing point pricing means that a seller
selects a given city as a “basing point” and
charges all customers the freight cost
associated from that city to the customer
location, regardless of the city from which
the goods are actually shipped
Copyright © 2010 Pearson Education, Inc.
Publishing as Prentice Hall
Chapter 11- slide 20
Price-Adjustment Strategies
Pricing Strategies
•
Freight absorption pricing means the
seller absorbs all or part of the actual freight
charge as an incentive to attract business in
competitive markets
Copyright © 2010 Pearson Education, Inc.
Publishing as Prentice Hall
Chapter 11- slide 21
Price-Adjustment Strategies
Pricing Strategies
Dynamic pricing is when prices are
adjusted continually to meet the
characteristics and needs of the
individual customer and situations
Copyright © 2010 Pearson Education, Inc.
Publishing as Prentice Hall
Chapter 11- slide 22
Price-Adjustment Strategies
Pricing Strategies
International pricing is when prices are set in
a specific country based on country-specific
factors
• Economic conditions
• Competitive conditions
• Laws and regulations
• Infrastructure
• Company marketing objective
Copyright © 2010 Pearson Education, Inc.
Publishing as Prentice Hall
Chapter 11- slide 23
Price Changes
Initiating Pricing Changes
• Price cuts
• Price increases
Copyright © 2010 Pearson Education, Inc.
Publishing as Prentice Hall
Chapter 11- slide 24
Price Changes
Initiating Pricing Changes
Price cuts occur due to:
• Excess capacity
• Increased market share
Price increase from:
• Cost inflation
• Increased demand
• Lack of supply
Copyright © 2010 Pearson Education, Inc.
Publishing as Prentice Hall
Chapter 11- slide 25
Price Changes
Buyer Reactions to Pricing Changes
Price
increases
• Product is “hot”
• Company greed
Copyright © 2010 Pearson Education, Inc.
Publishing as Prentice Hall
Price cuts
• New models
will be available
• Models are not
selling well
• Quality issues
Chapter 11- slide 26
Price Changes
Responding to Price Changes
• Questions
– Why did the competitor change the price?
– Is the price cut permanent or temporary?
– What is the effect on market share and
profits?
– Will competitors respond?
Copyright © 2010 Pearson Education, Inc.
Publishing as Prentice Hall
Chapter 11- slide 27
Price Changes
Responding to Price Changes
• Solutions
– Reduce price to match competition
– Maintain price but raise the perceived
value through communications
– Improve quality and increase price
– Launch a lower-price “fighting” brand
Copyright © 2010 Pearson Education, Inc.
Publishing as Prentice Hall
Chapter 11- slide 28
Public Policy and Pricing
Pricing Within Channel Levels
Price fixing: Sellers must set prices without
talking to competitors
Predatory pricing: Selling below cost with the
intention of punishing a competitor or
gaining higher long-term profits by putting
competitors out of business
Copyright © 2010 Pearson Education, Inc.
Publishing as Prentice Hall
Chapter 11- slide 29
Public Policy and Pricing
Pricing Across Channel Levels
Robinson Patman Act prevents unfair price
discrimination by ensuring that the seller
offer the same price terms to customers at a
given level of trade
Copyright © 2010 Pearson Education, Inc.
Publishing as Prentice Hall
Chapter 11- slide 30
Public Policy and Pricing
Pricing Across Channel Levels
Robinson Patman Act
• Price discrimination is allowed:
– If the seller can prove that costs differ
when selling to different retailers
– If the seller manufactures different
qualities of the same product for different
retailers
Copyright © 2010 Pearson Education, Inc.
Publishing as Prentice Hall
Chapter 11- slide 31
Public Policy and Pricing
Pricing Across Channel Levels
Retail (resale) price maintenance is when a
manufacturer requires a dealer to charge a
specific retail price for its products
Copyright © 2010 Pearson Education, Inc.
Publishing as Prentice Hall
Chapter 11- slide 32
Public Policy and Pricing
Pricing Across Channel Levels
Deceptive pricing occurs when a seller states
prices or price savings that mislead
consumers or are not actually available to
consumers
•
•
Scanner fraud failure of the seller to enter current
or sale prices into the computer system
Price confusion results when firms employ pricing
methods that make it difficult for consumers to
understand what price they are really paying
Copyright © 2010 Pearson Education, Inc.
Publishing as Prentice Hall
Chapter 11- slide 33
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