module eleven ppt

8/6/2019 Module Eleven Ppt.

1/18

Pricing Strategies andTactics

Copyright 2001 by McGraw-Hill Ryerson Limited


2/18

Copyright 2001 McGraw-Hill Ryerson Limited14 - 2

Chapter Goals

To gain an understanding of:

Price competition and value pricing

Pricing strategies for market entry:

skimming and penetration pricing Price discounts and allowances

Geographic pricing strategies

Special strategies including one-price,

flexible-price, price lining, resale pricemaintenance, leader pricing, everyday lowprice, odd pricing

Legal issues associated with pricing


3/18


Pricing Strategy

how does a company decide what price tocharge for its products and services?

what is the price anyway? doesnt price

vary across situations and over time? some firms have to decide what to charge

different customers and in differentsituations

they must decide whether discounts are tobe offered, to whom, when, and for whatreason


4/18


Price vs. NonpriceCompetition In price competition,price competition, a seller regularly offers

products priced as low as possible andaccompanied by a minimum of services.

In nonprice competitionnonprice competition, a seller has stableprices and stresses other aspects ofmarketing.

With value pricingvalue pricing, firms strive for morebenefits at lower costs to consumer.

With relationship pricing,relationship pricing, customers haveincentives to be loyal-- get price incentive ifyou do more business with one firm.


5/18


Nonprice Competition

some firms feel price is the main competitivetool, that customers always want low prices

other firms are looking for ways to add value,

thereby being able to avoid low prices sometimes prices have to be changed in

response to competitive actions

many firms would prefer to engage innonprice competitionnonprice competition by building brandequity and relationships with customers


6/18


Relationship Pricing

Uses price as a method to buildlong-term relationships with thebest customers

Focuses on giving better deals tobetter customers

Goal is to price relative to the value

of the customer to the firm, whilebuilding loyalty and stimulatingrepeat buying


7/18


The Price DeterminationProcess In pricing, an organization first must decide on its

pricing goal.

The next step is to set the base price for a product.

The final step involves designing pricingstrategies that are compatible with the rest of themarketing mix.

Many strategic questions must be answered:

Will our company compete on the basis ofprice or other factors?

What kind of discount schedule (if any) shouldbe adopted?


8/18


SELECT PRICING OBJECTIVE

SELECT METHOD OF DETERMINING THE BASE PRICE:

Cost-plus

pricing

Price based on

both demand

and costs

Price set in

relation to

market alone

DESIGN APPROPRIATE STRATEGIES:

Price vs. nonpricecompetition

Skimming vs.

penetration

Discounts and allowances

Freight paymentsOne price vs.

flexible price

Psychological pricing

Leader pricingEveryday low vs.

high-low pricing

Resale price

maintenance

The Process: An Illustration


9/18


Market EntryPricing Strategies MarketMarket--Skimming PricingSkimming Pricing: Setting a high initial

price for a new product.

Works if product is new, distinctive and desired

Early in Product Life Cycle, when demandinelastic

Protected by entry barriers, e.g. patents

MarketMarket--Penetration PricingPenetration Pricing: Setting a low initialprice for a new product.

Works if large market, elastic demand

Economies of scale are possible

Fierce competition


10/18


Discounts and Allowances

Quantity discount:Quantity discount: The more you buy,the cheaper it becomes-- cumulative andnon-cumulative.

Trade discountsTrade discounts:: Reductions from listfor functions performed-- storage,promotion.

Cash discountCash discount:: A deduction granted to

buyers for paying their bills within aspecified period of time, (after firstdeducting trade and quantity discountsfrom the base price)


11/18


3/10, NET 303/10, NET 30

1/7, NET 301/7, NET 30

Percentage to be

deducted if bill ispaid within specified

time

Percentage to be

deducted if bill ispaid within specified

time

Number of days from

date of invoice in

which bill must be

paid to receive cash

discount

Number of days from

date of invoice in

which bill must be

paid to receive cash

discount

Number of days from

date of invoice after

which bill is overdue

Number of days from

date of invoice after

which bill is overdue

Calculating a Cash Discount


12/18


Other Discounts and Allowances

Seasonal Discounts

Forward DatingPromotional Allowances


13/18


The Competition Act

Predatory pricing:Predatory pricing: Selling at unreasonablylow prices to lessen competition.

Price discrimination:Price discrimination: The use of different

prices for different customers. It is illegal if a price advantage is granted to

one, but not another, where both compete andthe articles are similar.

Granting promotional allowances must bedone on a proportionate basis to allcustomers.


14/18


Geographic PricingStrategies F.O.B. PointF.O.B. Point--ofof--Production pricing:Production pricing: Price

quoted at factory-- buyer paystransportation.

Uniform delivered pricing:Uniform delivered pricing: Same deliveredprice quoted to all; works if transportationcosts small.

ZoneZone--delivered pricing:delivered pricing: Set same price

within several zones, e.g. Maritimes,Quebec.

FreightFreight--absorption pricing:absorption pricing: Seller absorbstransport cost to penetrate market.


15/18


Special Pricing Strategies

firms may adopt a oneone--price strategyprice strategy orcharge different prices to differentcustomers

flexible pricing strategies:flexible pricing strategies: shoppers maypay different prices if they buy the samequantity


16/18

Copyright 2001 McGraw-Hill Ryerson Limited

14 - 16

Psychology of Pricing the psychologypsychology of pricing suggests that price

will convey a message about the product orservice being sold

leader pricing bait pricing

prestige pricing

price liningprice lining involves setting prices at a small

number of fixed levels within a retail store odd pricingodd pricing is often used to suggest a

bargain, while even pricing is used more inprestige, fashion stores


17/18


14 - 17

Questionable Pricing Practices

resale price maintenanceresale price maintenance involves asupplier requiring that intermediaries sella product at a certain price: illegal inCanada, firms are allowed to specify asuggested retail price

some firms reduce prices, possibly evenbelow cost, to attract customers; this formof lossloss--leaderleader pricing is not illegal unlessit persists for a long time with the goal ofeliminating competition (predatorypricing)


18/18


14 - 18

In EDLP pricingEDLP pricing, a retailer charges aconstant, low price with no temporary

discounts. For example: Wal-Mart, PriceClub, and Saturn.

In highhigh--low pricinglow pricing, a retailer charges higher

prices but then runs frequent promotions inwhich prices are temporarily lowered.

Everyday Low Price (EDLP)vs. High/Low Pricing

module eleven ppt

Documents