Chapter Eleven Pricing Strategies Copyright 2009 Pearson Education,

Chapter Eleven Pricing Strategies Copyright  2009 Pearson Education,

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 Marketpenetration 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 Product Mix Pricing Strategies Pricing Strategies Product line pricing Optional- product pricing By-product pricing

Product bundle pricing Copyright 2010 Pearson Education, Inc. Publishing as Prentice Hall Captive- product 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 Discoun t and allowan ce pricing Geogra phicpric ing Segmen ted

pricing Dynami c pricing Copyright 2010 Pearson Education, Inc. Publishing as Prentice Hall Psychol ogical pricing Internati onal pricing Promoti

onal 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 Pricing 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-origin pricing Uniformed-delivered 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-origin (free on board) pricing means that the goods are delivered to the carrier and the title and responsibility passes to the customer Uniformed-delivered 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 Lack of supply Increased demand Copyright 2010 Pearson Education, Inc. Publishing as Prentice Hall Chapter 11- slide 25 Price Changes Buyer Reactions to Pricing Changes Price increases

Company greed Product is hot Copyright 2010 Pearson Education, Inc. Publishing as Prentice Hall New models will be available Quality issues Models are not selling well Price cuts 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 Price Changes Responding to Price Changes

Copyright 2010 Pearson Education, Inc. Publishing as Prentice Hall Chapter 11- slide 29 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 30 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 31

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 32

Public Policy and Pricing Pricing Across Channel Levels Retail (or 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 33

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 34

All rights reserved. No part of this publication may be reproduced, stored in a retrieval system, or transmitted, in any form or by any means, electronic, mechanical, photocopying, recording, or otherwise, without the prior written permission of the publisher. Printed in the United States of America. Copyright 2010 Pearson Education, Inc. Publishing as Prentice Hall Copyright 2010 Pearson Education, Inc. Publishing as Prentice Hall Chapter 11- slide 35

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