2000 Prentice Hall Objectives Setting the Price Adapting

2000 Prentice Hall Objectives  Setting the Price Adapting

2000 Prentice Hall Objectives Setting the Price Adapting the Price Initiating & Responding to Price Changes 2000 Prentice Hall Price - Quality Strategies Product Quality High Med Low 2000 Prentice Hall

Price High Medium Low Premium Premium Value Value High Value Super Value Overcharging Medium Value

Good-Value Rip-Off False Economy Economy Setting Pricing Policy 1. Selecting the pricing objective 2. Determining demand 3. Estimating costs 4. Analyzing competitors costs, prices, and offers 5. Selecting a pricing method 6. Selecting final price 2000 Prentice Hall Types of Costs Fixed FixedCosts Costs

(Overhead) (Overhead) Variable VariableCosts Costs Costs Coststhat thatdont dont vary varywith withsales salesor or production productionlevels. levels. Costs Coststhat thatdo dovary vary

directly directlywith withthe the level levelof ofproduction. production. Executive ExecutiveSalaries Salaries Rent Rent Raw Rawmaterials materials Total Total Costs Costs Sum Sumof

ofthe theFixed Fixedand andVariable VariableCosts Costsfor foraaGiven Given Level Levelof ofProduction Production 2000 Prentice Hall The Three Cs Model for Price Setting Low Price No possible profit at this price 2000 Prentice Hall Costs

Competitors prices and prices of substitutes Customers High Price assessment No possible of unique demand at product this price features Pricing Methods Markup Pricing Target Return Pricing

Perceived Value Pricing Value Pricing Going-Rate Pricing Sealed-Bid Pricing 2000 Prentice Hall Some important pricing definitions Utility: The attribute that makes it capable of want satisfaction Value: The worth in terms of other products Price: The monetary medium of exchange. 2000 Prentice Hall Value Example: Caterpillar

Tractor is $100,000 vs. Market $90,000 $90,000 if equal 7,000 extra durable 6,000 reliability 5,000 service 2,000 warranty $110,000 in benefits $10,000 discount! Promotional Pricing Loss-leader pricing Special-event pricing Cash rebates Low-interest financing Longer payment terms Warranties & service contracts Psychological discounting

2000 Prentice Hall Psychological Pricing A 32 oz. B $2.19 $1.99 26 oz. Assume Equal Quality 2000 Prentice Hall Most Attractive? Better Value?

Psychological reason to price this way? Discriminatory Pricing Customer Segment Product-form Location Time 2000 Prentice Hall Price-Reaction Program for Meeting a Competitors Price Cut Has competitor cut his price? No Hold our price at present level; continue to watch competitors price

No No Yes Is the price Is it likely to be How much has likely to permanent Yes his price been significantly Yes aprice cut? cut? hurt our sales? By less than 2% Include a cents-off coupon for the next purchase 2000 Prentice Hall By 2-4% Drop price by half of the competitors price cut

By more than 4% Drop price to competitors price Review Setting the Price Adapting the Price Initiating & Responding to Price Changes 2000 Prentice Hall

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