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Chapter 20: Setting the Right Price
Designed & Prepared by Laura RushB-books, Ltd.
Introduction to
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Learning OutcomesDescribe the procedure for settingthe right price
Identify the legal and ethical constraints on pricing decisions
Explain how discounts, geographic pricing, and other pricing tactics can be used to fine-tune the base price
Discuss product line pricing
Describe the role of pricing during periods of inflation and recession
LO1
LO2
LO3
LO5
LO4
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Establish Pricing Goals
Profit-Oriented
Sales-Oriented
Status Quo
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Choose a Price Strategy
Price skimming - A firm charges a high introductory price, often coupled
with heavy promotion.
Penetration Pricing - A firm charges a relatively low price for a product initially as a way
to reach the mass market.
Status Quo Pricing - Charging a price identical to or very close to the competition’s price.
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The Legality and Ethics ofPrice Strategy
Unfair Trade PracticesUnfair Trade Practices
Price FixingPrice Fixing
Price DiscriminationPrice Discrimination
Predatory PricingPredatory Pricing
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Tactics for Fine-Tuning the Base Price
Special pricing tactics Special pricing tactics
DiscountsDiscounts
Geographic pricingGeographic pricing
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Discounts, Allowances, Rebates, andValue-Based Pricing
Quantity DiscountsQuantity Discounts
Cash DiscountsCash Discounts
Functional DiscountsFunctional Discounts
Seasonal DiscountsSeasonal Discounts
Promotional AllowancesPromotional Allowances
RebatesRebates
Zero Percent FinancingZero Percent Financing
Value-Based PricingValue-Based Pricing
Markdown MoneyMarkdown Money
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Pricing Products Too Low
1. Managers attempt to buy market share through aggressive pricing.
2. Managers tend to make pricing decisions based on current costs, current competitor prices, and short-term share gains rather than on long-term profitability.
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Geographic Pricing
Basing-point pricing
Basing-point pricing
Freight absorptionpricing
Freight absorptionpricing
Zone pricingZone pricing
Uniform delivered pricing
Uniform delivered pricing
FOB origin pricingFOB origin pricing
Onlinehttp://www.ups.com
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Other Pricing TacticsSingle-Price Tactic All goods offered at the same price
Flexible Pricing Different customers pay different price
Professional Services Pricing
Used by professionals with experience,training or certification
Price Lining Several line items at specific price points
Leader Pricing Sell product at near or below cost
Bait Pricing Lure customers through false or misleading price advertising
Odd-Even Pricing Odd-number prices imply bargainEven-number prices imply quality
Price Bundling Combining two or more products in a single package
Two-Part Pricing Two separate charges to consume a single good
Pay What You Want Allowing customers to pay what they think a product is worth
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Consumer Penalties
An irrevocable loss of revenue
is suffered
Additional transaction costs
are incurred
Businesses Impose Consumer Penalties If...
Onlinehttp://www.princesscruises.comhttp://www.carnival.com
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Product Line Pricing
Onlinehttp://www.beauty.com
Setting prices for an entire line of products.
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Relationships Among Products
ComplementaryComplementary
SubstitutesSubstitutes
NeutralNeutral
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Joint Costs
Costs that are shared in the manufacturing
and marketing of several products in a product life.
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Inflation
Cost-Oriented TacticsCost-Oriented Tactics
High InflationHigh Inflation
Demand-Oriented TacticsDemand-Oriented Tactics
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Cost-Oriented Tactics
Delayed-quotation pricing
Escalator pricing
Hold prices constant, but add new fees
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Demand-Oriented Tactics
Strategies to Make Demand
More Inelastic
Strategies to Make Demand
More Inelastic
Cultivate selected demandCultivate selected demand
Create unique offeringsCreate unique offerings
Change the package designChange the package design
Heighten buyer dependenceHeighten buyer dependence
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Recession
Bundling or UnbundlingBundling or Unbundling
Value-Based PricingValue-Based Pricing
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