1Chap. 18 Marketing 7e Lamb Hair McDaniel ©2004 South-Western/Thomson Learning Setting the Right...

1Chap. 18 Marketing 7e Lamb Hair McDaniel©2004 South-Western/Thomson Learning

Setting the Right PriceSetting the Right Price

Prepared byPrepared byDeborah BakerDeborah Baker

Texas Christian UniversityTexas Christian University

Chapter 18


Learning ObjectivesLearning Objectives

1. Describe the procedure for settingthe right price.

2. Identify the legal and ethical constraints on pricing decisions.

3. Explain how discounts, geographic pricing, and other special pricing tactics can be used to fine-tune the base price.


Learning Objectives Learning Objectives (continued)(continued)

4. Discuss product line pricing.

5. Describe the role of pricing during periods of inflation and recession.


On Linehttp://www.dell.comhttp://www.ibm.comhttp://www.hp.comhttp://www.apple.com

On Linehttp://www.dell.comhttp://www.ibm.comhttp://www.hp.comhttp://www.apple.com

Learning Objective Learning Objective

Describe the procedure for setting the right price.

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Steps in Setting the Right Steps in Setting the Right PricePrice

Results lead to the right price

Fine tune with pricing tacticsFine tune with pricing tactics

Choose a price strategyChoose a price strategy

Estimate demand, costs, and profitsEstimate demand, costs, and profits

Establish pricing goalsEstablish pricing goals

11


Pricing ObjectivesPricing Objectives11

Profit-Oriented Pricing ObjectivesProfit-Oriented Pricing ObjectivesProfit-Oriented Pricing ObjectivesProfit-Oriented Pricing Objectives

Sales-Oriented Pricing ObjectivesSales-Oriented Pricing ObjectivesSales-Oriented Pricing ObjectivesSales-Oriented Pricing Objectives

Status Quo Pricing ObjectivesStatus Quo Pricing ObjectivesStatus Quo Pricing ObjectivesStatus Quo Pricing Objectives


Price StrategyPrice Strategy

A basic, long-term pricing

framework, which

establishes the initial price

for a product and the

intended direction for

price movements over the

product life cycle.

11


Choosing a Price StrategyChoosing a Price Strategy

Basic StrategiesBasic Strategiesforfor

Setting PricesSetting Prices

Basic StrategiesBasic Strategiesforfor

Setting PricesSetting Prices

Status Quo Pricing Status Quo Pricing

Price SkimmingPrice Skimming

Penetration PricingPenetration Pricing

11


Price SkimmingPrice Skimming

SituationsSituationswhenwhenPrice Price

SkimmingSkimmingIs Is

SuccessfulSuccessful

SituationsSituationswhenwhenPrice Price

SkimmingSkimmingIs Is

SuccessfulSuccessful

Unique Advantages/Superior

Legal Protection of Product

Blocked Entry to Competitors

Technological Breakthrough

Inelastic Demand

11



A pricing policy whereby

a firm charges a relatively

low price for a product

initially as a way to

reach the mass market.

11

On Linehttp://www.iflyswa.com

On Linehttp://www.iflyswa.com



AdvantagesAdvantagesAdvantagesAdvantages

Discourages or blocks competition from market entry

Boosts sales and provides large profit increases.

DisadvantagesDisadvantagesDisadvantagesDisadvantages

Requires gear up for mass production

Selling large volumes at low prices

Strategy to gain market share may fail

11


Status Quo PricingStatus Quo Pricing

AdvantagesAdvantagesAdvantagesAdvantages

Simplicity

Safest route to long-term survival for small firms

DisadvantagesDisadvantagesDisadvantagesDisadvantages

Strategy may ignore demand and/or cost

11



Identify the legal and ethical constraints on pricing decisions.

22


The Legality and Ethics ofThe Legality and Ethics ofPrice StrategyPrice Strategy

Issues Issues That LimitThat LimitPricing Pricing DecisionsDecisions

Issues Issues That LimitThat LimitPricing Pricing DecisionsDecisions

Unfair Trade PracticesUnfair Trade Practices

Price FixingPrice Fixing

Price DiscriminationPrice Discrimination

Predatory PricingPredatory Pricing

22


Unfair Trade Practice ActsUnfair Trade Practice Acts

Laws that prohibit

wholesalers and retailers

from selling below cost.

22


Price FixingPrice Fixing

An agreement between two

or more firms on the

price they will charge

for a product.

22On Linehttp://www.altavista.comhttp://www.yahoo.com

On Linehttp://www.altavista.comhttp://www.yahoo.com


Price DiscriminationPrice Discrimination

The Robinson-Patman Act of 1936:

Prohibits any firm from selling to two or more different buyers at different prices if the result would lessen competition

22


Robinson-Patman Act Robinson-Patman Act DefensesDefenses

Seller Defenses Seller Defenses Seller Defenses Seller Defenses

CostCost MarketConditions

MarketConditions CompetitionCompetition

22


Predatory PricingPredatory Pricing

The practice of charging a

very low price for a product

with the intent of driving

competitors out of business

or out of a market.

22



Explain how discounts, geographic pricing, and other special pricing tactics can be used to fine-tune the base price.

33


Tactics for Fine-Tuning Tactics for Fine-Tuning the Base Pricethe Base Price

Special Pricing Tactics Special Pricing Tactics

DiscountsDiscounts

Geographic PricingGeographic Pricing

33


Tactics for Fine-Tuning Tactics for Fine-Tuning the Base Pricethe Base Price

Quantity DiscountsQuantity Discounts

Cash DiscountsCash Discounts

Functional DiscountsFunctional Discounts

Seasonal DiscountsSeasonal Discounts

33

Promotional AllowancesPromotional Allowances

RebatesRebates

Value-Based PricingValue-Based Pricing

Zero Percent FinancingZero Percent Financing

On Linehttp://www.edmunds.com

On Linehttp://www.edmunds.com



The price is set at a level

that seems to the customer

to be a good price

compared to the prices of

other options.

33



Basing-Point Pricing

Basing-Point Pricing

Freight AbsorptionPricing

Freight AbsorptionPricing

Zone PricingZone Pricing

Uniform Delivered Pricing

Uniform Delivered Pricing

FOB Origin PricingFOB Origin Pricing

Common Common Methods ofMethods ofGeographicGeographic

PricingPricing

Common Common Methods ofMethods ofGeographicGeographic

PricingPricing

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FOB OriginPricing

FOB OriginPricing

The buyer absorbs the freight costs from the shipping point

(“free on board”).

The buyer absorbs the freight costs from the shipping point

(“free on board”).

UniformDelivered

Pricing

UniformDelivered

Pricing

The seller pays the freight charges and bills the purchaser an

identical, flat freight charge.

The seller pays the freight charges and bills the purchaser an

identical, flat freight charge.

33


On Linehttp://www.ups.com

On Linehttp://www.ups.com


Zone PricingZone Pricing

FreightAbsorption

Pricing

FreightAbsorption

Pricing

Basing-PointPricing

Basing-PointPricing

The U.S. is divided into zones and a flat freight rate is charged to

customers in a given zone.

The U.S. is divided into zones and a flat freight rate is charged to

customers in a given zone.

The seller pays for all or part of the freight charges and does not

pass them on to the buyer.

The seller pays for all or part of the freight charges and does not

pass them on to the buyer.

The seller designates a location as a basing point and charges all

buyers the freight costs from that point.

The seller designates a location as a basing point and charges all

buyers the freight costs from that point.

33


On Linewww.ford.com

On Linewww.ford.com

Special Pricing TacticsSpecial Pricing Tactics

Single-Price Tactic Single-Price Tactic

Flexible PricingFlexible Pricing

Professional Services PricingProfessional Services Pricing

Price LiningPrice Lining

Leader PricingLeader Pricing

Bait PricingBait Pricing

Odd-Even PricingOdd-Even Pricing

Price Bundling Price Bundling

Two-Part PricingTwo-Part Pricing

All goods offered at the same price All goods offered at the same price

Different customers pay different priceDifferent customers pay different price

Used by professionals with experience,training or certificationUsed by professionals with experience,training or certification

Several line items at specific price pointsSeveral line items at specific price points

Sell product at near or below costSell product at near or below cost

Lure customers through false or misleading price advertisingLure customers through false or misleading price advertisingOdd-number prices imply bargainEven-number prices imply qualityOdd-number prices imply bargainEven-number prices imply qualityCombining two or more products in a single package Combining two or more products in a single package

Two separate charges to consume a single goodTwo separate charges to consume a single good

33


Consumer PenaltiesConsumer Penalties

An irrevocable loss of revenue

is suffered

An irrevocable loss of revenue

is suffered

Additional transaction costs

are incurred

Additional transaction costs

are incurred

Businesses Impose Businesses Impose Consumer Penalties If...Consumer Penalties If...

Businesses Impose Businesses Impose Consumer Penalties If...Consumer Penalties If...

33On Linehttp://www.princesscruises.comhttp://www.carnival.com

On Linehttp://www.princesscruises.comhttp://www.carnival.com


Consumer Consumer PenaltiesPenalties

33



Discuss product line pricing.

44


Product Line PricingProduct Line Pricing

Setting prices for an entire

line of products.

44

On Linehttp://www.beauty.com

On Linehttp://www.beauty.com


Relationships among Relationships among ProductsProducts

RelationshipsAmong Products

RelationshipsAmong Products

ComplementaryComplementary

SubstitutesSubstitutes

NeutralNeutral

44


Joint CostsJoint Costs

Costs that are shared in the

manufacturing and

marketing of several

products in a product line.

44



Describe the role of pricing during periods of inflation and recession.

55


Pricing During Pricing During Difficult Economic TimesDifficult Economic Times

Demand-Oriented TacticsDemand-Oriented Tactics

Cost-Oriented TacticsCost-Oriented Tactics

High InflationHigh InflationPricing TacticsPricing TacticsHigh InflationHigh Inflation

Pricing TacticsPricing Tactics

55



A high volume of sales on an item with a low profit margin may still make the item highly profitable

Eliminating a product may reduce economies of scale

Eliminating a product may affect the price-quality image of entire line

Problems with Problems with Cost-Oriented TacticsCost-Oriented Tactics

Problems with Problems with Cost-Oriented TacticsCost-Oriented Tactics

55



Delayed-Quotation

Pricing

Delayed-Quotation

Pricing

A firm price is not set until the item is either finished or delivered. A firm price is not set until the

item is either finished or delivered.

EscalatorPricing

EscalatorPricing

The final selling price reflects cost increases incurred between the

time the order is placed and when delivery is made.

The final selling price reflects cost increases incurred between the

time the order is placed and when delivery is made.

55


Cost-Oriented Tactics Cost-Oriented Tactics

IncreasedIncreasedProductionProduction

CostsCosts

Dec

reas

edD

ecre

ased

Dem

and

Dem

and

Price

Price

Increase

IncreaseMaintainingMaintaininga Fixed a Fixed

Gross MarginGross Margin

55


Price ShadingPrice Shading

The use of discounts by

salespeople to increase

demand for one or more

products in a line.

55


Demand-Oriented TacticsDemand-Oriented Tactics

Strategies Strategies to Make to Make Demand Demand

More InelasticMore Inelastic

Strategies Strategies to Make to Make Demand Demand

More InelasticMore Inelastic

Cultivate selected demandCultivate selected demand

Create unique offeringsCreate unique offerings

Change the package designChange the package design

Heighten buyer dependenceHeighten buyer dependence

55


Pricing During RecessionPricing During Recession

Bundling or UnbundlingBundling or Unbundling


RecessionRecessionPricing TacticsPricing Tactics

RecessionRecessionPricing TacticsPricing Tactics

55

On Linehttp://www.kroger.com

On Linehttp://www.kroger.com


Supplier Strategies Supplier Strategies During RecessionDuring Recession

Cost-SavingCost-SavingStrategies Strategies

withwithSuppliersSuppliers

Cost-SavingCost-SavingStrategies Strategies

withwithSuppliersSuppliers

Renegotiating contractsRenegotiating contracts

Offering helpOffering help

Keeping the pressure onKeeping the pressure on

Paring down suppliersParing down suppliers

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1Chap. 18 Marketing 7e Lamb Hair McDaniel ©2004 South-Western/Thomson Learning Setting the Right...

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Transcript of 1Chap. 18 Marketing 7e Lamb Hair McDaniel ©2004 South-Western/Thomson Learning Setting the Right...