pricing fall 2006. a customer might ask, “what does that cost?” to the customer, what are costs?
Post on 22-Dec-2015
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Pricing
Fall 2006
A customer might ask, “What does that cost?”
To the customer, what are costs?
Pricing Products Price is the amount of money charged
for a product. This is not the same as the COSTS of product acquisition.
1995 FERRARI 355 $95,000.00
Pricing Terms Fixed Costs Variable Costs Price Elasticity: sensitivity of demand to
changes in price Quantity Demanded/ Price
Break Even Point
Knothole Skiers Costs:
– $25,000 rent for studio– $2 materials for manufacture of CD– $.50 royalty to artists
$ 5 price
Internal Factors Affecting Pricing
Marketing Objectives– profits– market share– survival– middleman loyalty– discourage competitors– product-line consistency– visibility for product
Internal Factors Affecting Pricing
Costs– Production and efficient use of capacity– Experience curve– Variable Costs
External Factors Affecting Pricing Competition Demand Economy Government Societal Concerns
Setting Price
Cost Based Competition Based Demand/Value Based
$40,137.00
Pricing Strategies: The Familiar
Market-Skimming Pricing Market-Penetration Pricing
Pricing Strategies: The Familiar Product Line Pricing
Pricing Strategy
Sells: 100,000 units Price: $10 Fixed Costs: $500,000 for a capacity of
200,000 Units Variable Costs: $1 Request to sell in a new market. What
is the minimum selling price the firm should accept?
Second Market Discounting
Sells: 100,000 units Price: $10 Fixed Costs: $500,000 for a capacity of
200,000 Units Variable Costs: $1 Request to sell in a new market. What
is the minimum selling price the firm should accept?
Pricing Strategy
Average Economic Costs (all costs plus profit)– $55 at 20 Units– $40 at 40 Units
40 Consumers per period are interested in product. 20 want it at beginning of period and willing to pay
$50. 20 are price sensitive and will pay no more than $30
per unit. At which price should the firm sell its product?
Periodic/Seasonal Discounting
Average Economic Costs (all costs plus profit)– $55 at 20 Units– $40 at 40 Units
40 Consumers per period are interested in product. 20 want it at beginning of period and willing to pay
$50. 20 are price sensitive and will pay no more than $30
per unit. At which price should the firm sell its product?
Pricing Strategy
Distribute two films: Halloween XVI (a) and Chucky’s In Love (b). Albany (x) and Corvallis (y) theatres are interested. Discrimination is illegal as is tying.
Corvallis will pay $25K for (a) and $10K for (b)
Albany will pay $12K for (a) and $18K for (b). What pricing strategy do you use?
Price Bundling
Distribute two films: Halloween XVI (a) and Chucky’s In Love (b). Albany (x) and Corvallis (y) theatres are interested. Discrimination is illegal as is tying.
Corvallis will pay $25K for (a) and $10K for (b)
Albany will pay $12K for (a) and $18K for (b). What pricing strategy do you use?
Pricing Strategy
Produce computer printers. Ave. Economic Cost is $100 with a life of 3 years. During that time, product uses ink cartridges for which AEC is .50 per month. Consumers willing to pay $50 for printer and $2 per month for supplies. What pricing?
Captive Product Pricing
Produce computer printers. Ave. Economic Cost is $100 with a life of 3 years. During that time, product uses ink cartridges for which AEC is .50 per month. Consumers willing to pay $50 for printer and $2 per month for supplies. What pricing?
Other Pricing Issues
Segmented Pricing: different customers pay different prices
Psychological Pricing
Other Pricing Issues
Price cuts and price increases: jnd Channel members
– Bad: price fixing (collusion), predatory pricing, price discrimination, resale price maintenance, deceptive pricing