Chapter 26 Section 26.2

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Marketing Essentials
n Chapter 26 Pricing Strategies
Section 26.2 Setting Prices
Chapter 26 n Pricing Strategies
1
SECTION 26.2
Setting Prices
What You'll Learn
 The various pricing techniques
 The steps in setting prices
Chapter 26 n Pricing Strategies
2
SECTION 26.2
Setting Prices
Why It's Important
Now that you have studied pricing concepts
and policies, it is time to look at the special
pricing techniques that help companies
achieve their business goals. Then you will
put all of that information into a single
process: the steps for determining price.
Chapter 26 n Pricing Strategies
3
SECTION 26.2
Setting Prices
Key Terms
 odd-even pricing
 everyday low prices
(EDLP)
 prestige pricing
 price lining
 multiple-unit pricing
 discount pricing
 bundle pricing
 trade discounts
 promotional pricing
 seasonal discounts
 psychological pricing
Chapter 26 n Pricing Strategies
4
SECTION 26.2
Setting Prices
Pricing Techniques
Two common pricing techniques marketers
use are:
 psychological pricing
 discount pricing
Chapter 26 n Pricing Strategies
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SECTION 26.2
Setting Prices
Psychological Pricing
Psychological pricing refers to techniques that
create an illusion for customers or that make
shopping easier for them. Common psychological
pricing techniques are:
 odd-even pricing
 prestige pricing
 multiple-unit pricing
 bundle pricing
 promotional pricing
 everyday low prices (EDLP)
 price lining
Slide 1 of 5
Chapter 26 n Pricing Strategies
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SECTION 26.2
Setting Prices
Psychological Pricing
Odd-even pricing involves setting prices
that end in either odd or even numbers.
Odd numbers convey a bargain image;
even numbers convey quality.
Prestige pricing involves setting
higher-than-average prices to suggest
status and prestige.
Slide 2 of 5
Chapter 26 n Pricing Strategies
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SECTION 26.2
Setting Prices
Psychological Pricing
Multiple-unit pricing involves pricing items
in multiples to suggest a bargain and increase
sales volume.
Bundle pricing involves including several
complementary products in a package and
pricing them lower as a group than if they
were bought separately.
Slide 3 of 5
Chapter 26 n Pricing Strategies
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SECTION 26.2
Setting Prices
Psychological Pricing
Promotional pricing is generally used in
conjunction with sales promotions when
prices are lower than average.
 Loss-leader pricing provides items
at cost to attract customers.
 In special-event pricing, prices are
reduced for a short period of time,
such as a holiday sale.
Slide 4 of 5
Chapter 26 n Pricing Strategies
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SECTION 26.2
Setting Prices
Psychological Pricing
Everyday low prices (EDLP) are low prices
that are set on a consistent basis with no
intention of raising them or offering discounts
in the future.
Price lining involves offering all
merchandise in a given category at certain
prices, such as $25, $35, and $50.
Slide 5 of 5
Chapter 26 n Pricing Strategies
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SECTION 26.2
Setting Prices
Discount Pricing
Discount pricing involves the seller's offering
reductions from the usual price. They include:
 cash
 quantity
 trade
 seasonal discounts
 promotional discounts and allowances
Slide 1 of 4
Chapter 26 n Pricing Strategies
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SECTION 26.2
Setting Prices
Discount Pricing
Cash discounts are offered to buyers to
encourage them to pay their bills quickly.
Quantity discounts are offered to buyers for
placing large orders.
 Noncumulative quantity discounts are
offered on one order.
 Cumulative quantity discounts are offered
on all orders over a specified period of time.
Slide 2 of 4
Chapter 26 n Pricing Strategies
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SECTION 26.2
Setting Prices
Discount Pricing
Trade discounts are the way manufacturers
quote prices to wholesalers and retailers.
Manufacturers establish suggested retail prices
for their items, then grant members of the
channel of distribution discounts from the list
prices for performing their respective functions.
Slide 3 of 4
Chapter 26 n Pricing Strategies
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SECTION 26.2
Setting Prices
Discount Pricing
Seasonal discounts are offered to buyers
willing to buy at a time outside the
customary buying season.
Promotional discounts are offered to
wholesalers and retailers willing to advertise
or promote a manufacturer's products.
Allowances are granted to customers for
selling back an old model.
Slide 4 of 4
Chapter 26 n Pricing Strategies
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SECTION 26.2
Setting Prices
Steps in Setting Prices
These are the six steps in determining a price
for an item:
1. Determine pricing objectives.
2. Study costs.
3. Estimate demand.
4. Study competition.
5. Decide on a pricing strategy.
6. Set price.
Chapter 26 n Pricing Strategies
15
SECTION 26.2
Setting Prices
Step 1—Determining Pricing Objectives
What is your purpose in setting a price? Do
you want to increase sales volume or sales
revenue? Establish a prestigious image?
Increase your market share and market
position? Answering these questions will help
you keep your prices in line with other
marketing decisions.
Chapter 26 n Pricing Strategies
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SECTION 26.2
Setting Prices
Step 2—Study Costs
Since the main reason for being in business
is to make a profit, give careful consideration
to the costs involved in making or acquiring
the goods or services you will offer for sale.
Determine whether and how you can reduce
costs without affecting the quality or image
of your product.
Chapter 26 n Pricing Strategies
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SECTION 26.2
Setting Prices
Step 3—Estimate Demand
Employ market research techniques to
estimate consumer demand. The key to
pricing goods and services is to set prices
at the level consumers expect to pay. In
many cases, those prices are directly
related to demand.
Chapter 26 n Pricing Strategies
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SECTION 26.2
Setting Prices
Step 4—Study Competition
Investigate your competitors to see what
prices they are charging for similar goods
and services. Study the market leader.
What is the range of prices from the ceiling
price to the price floor? Will you price your
goods lower than, equal to, or higher than
your competitors'?
Chapter 26 n Pricing Strategies
19
SECTION 26.2
Setting Prices
Step 5—Decide on a Pricing Strategy
You may decide to price your product higher
than the competition's because you believe
your product is superior. You may decide to
set a lower price with the understanding that
you will raise it once the product is accepted
in the marketplace.
Chapter 26 n Pricing Strategies
20
SECTION 26.2
Setting Prices
Step 6—Set Price
After you have evaluated all the foregoing
factors, apply the pricing techniques that
match your strategy and set an initial price.
Be prepared to monitor that price and
evaluate its effectiveness as conditions in
the market change.
Chapter 26 n Pricing Strategies
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26.2 ASSESSMENT
Reviewing Key Terms and Concepts
1. How are odd-even, prestige, multiple-unit,
2.
3.
4.
5.
and bundle pricing related? Different?
What is the main difference between
promotional pricing and everyday low prices?
What is the key factor in deciding on price
lines?
Name five types of discount pricing
techniques.
List the six steps in setting prices.
Chapter 26 n Pricing Strategies
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26.2 ASSESSMENT
Thinking Critically
Johnson & Johnson promoted its baby
shampoo to adult male athletes by touting
the product's gentleness, even when used
every day. At what stage in the shampoo's
life cycle do you think this promotion took
place? What do you think Johnson &
Johnson was trying to accomplish by
promoting its baby shampoo to adult males?
Chapter 26 n Pricing Strategies
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26.2 Graphic Organizer
Types of
Psychological
Pricing
OddEven
Pricing
Prestige
Pricing
Price
Lining
Everyday
Low Prices
(EDLP)
Psychological
Pricing
Promotional
Pricing
MultipleUnit
Pricing
Bundle
Pricing
Chapter 26 n Pricing Strategies
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Marketing Essentials
End of Section 26.2
Chapter 26 n Pricing Strategies
25
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