Ch.18 And 19
- 1. Pricing Concepts & StrategiesIntro to MarketingChapter18 & 19
- 2. Pricing and the LawRobinson- Patman ActProhibits price discrimination & selling at an unreasonably low price to eliminate competitionUnfair Trade LawsWal-Mart was found guilty of this in 1993 for selling drugs and health & beauty aids below costFair Trade LawsAllows manufacturers to stipulate minimum retail prices for their products
- 3. Pricing ObjectivesProfitability Objectives Profit MaximizationThe point where additional revenue is just balanced by the increase in total cost.
- 4. Pricing Objectives (cont.)Volume ObjectivesSales MaximizationLowest acceptable profit level from which sales can be maximizedMarket share objectives set prices so as to capture a certain portion of the market
- 5. Pricing Objectives (cont.)Meeting Competition ObjectivesValue PricingLow priced but good qualityEmphasize the benefits a product has in comparison to the pricePricing at Competition
- 6. Pricing Objectives (cont.)Value PricingEmphasizes benefits compared to price & qualityUsed for low priced goods and servicesPrestige ObjectivesUsing high prices to maintain a quality image with customers
- 7. Methods of Determining PriceApplying Supply & DemandCost-oriented AnalysisApplying Customary Prices
- 8. Price Determination:Cost and Revenue CurvesVariable costs change with the level of productionFixed costs remain stable regardless of production levelAverage total costs are calculated by dividing total variable and fixed costs by the number of units produced
- 9. ElasticityThe measure of responsiveness of purchasers and suppliers to price changesElastic product: when the price goes up, demand for it goes downOrangesInelastic Product: when the price goes up, the demand for the product doesn’t change very muchCigarettesGasoline
- 10. Price Determination In PracticeCost-plus pricing - uses a base cost figure and adds a markup to cover costs and provide a profitThe most commonly used method of setting prices.A retailer may add a 50% markup to all items
- 11. Price determination in Practice (continued)Breakeven analysis - determining the number of products or services that must be sold at a given price to generate sufficient revenue
- 12. Pricing StrategiesSkimming pricing strategiesuse of a relatively high price compared to prices of competing productsmost commonly used as a market-entry pricePenetration pricing strategiesuse low prices to attract consumer purchasesgain consumer goodwill and secure marketplace acceptanceEveryday Low Pricing
- 13. Pricing Strategies (continued)Competitive pricing strategiesprice products at the general levels of competitive offerings
- 14. Reductions From the List PriceCash Discountsreduction in price for prompt payment of a billTrade DiscountsQuantity Discountsreductions for large-volume purchaseTrade-ins or AllowancesRebatesFOB Plant- also called FOB Origin Buyer pays all freight
- 15. Pricing PoliciesPsychologicalOdd pricingchoosing prices ending in numbers not commonly used for price quotationsUnit Pricingpriced by unit of measurementPrice FlexibilityAllowing variable prices for different customersProduct Line Loss Leadersgoods priced below cost to attract customers