Download - Chapter 12 (setting the right price)
Fundamental Of MarketingMKT243
Chapter 12Setting the Right Price
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Slide Outline• How to set a price on a product• The legality and ethics of price strategy• Tactics for fine tuning the base price• Product line pricing• Pricing during inflation and recession• Price adjustment strategy
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The 4-step of Setting the Right Price
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Establishing Pricing Goals
Estimate Demand, Cost and Profits
Choose a price strategy
Fine tune the base priceWith pricing tactics
Result lead to The right price
The 4-step of Setting the Right Price
1. Establishing pricing goals-Setting specific goals (objective: Profit-oriented, Sales-oriented or Status quo)-All pricing objectives have trade-offs that managers must weight.
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The 4-step of Setting the Right Price
2. Estimate demand, costs, and profit-Estimating total revenue at a variety level of prices, determine, determine costs for each price, then estimate how much profit and how much market share can be earned.-3 basic approaches of price strategy
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The 4-step of Setting the Right Price
3. Choose a Price Strategy-Price strategy-A basic, long-term pricing framework, which established the initial price for a product and the intended direction for price movements over the product life cycle-Setting a competitive price in a specific market segment
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The 4-step of Setting the Right Price
a) Price SkimmingMarket-skimming pricing is a strategy with high initial prices to “skim”
revenue layers from the marketThe company charges a high introductory price due to the heavy promotionAlso known as “market-plus” approach
Provided that:• 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
Pricing Strategies
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The 4-step of Setting the Right Price
b) Penetration PricingMarket-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
The company charges a relatively low introductory price for a product to reach a mass market and to attract large number of buyers
Provided that:• Price sensitive market• Inverse relationship of production and distribution cost to
sales growth• Low prices must keep competition out of the market
Pricing Strategies
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The 4-step of Setting the Right Price
c) Status Quo PricingStatus Quo pricing is charging the customer with
price that are identical to every close competition’s price.
Also know as meeting the competitor or Going Rate Pricing
Advantages-SimpleDisadvantages-This strategy may ignore demand or
cost or both
Pricing Strategies
Pricing Objectives vs. Pricing Strategy
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Status Quo Oriented Status Quo Oriented
Profit OrientedProfit Oriented
Sales OrientedSales Oriented
Status Quo Pricing Status Quo Pricing
Price SkimmingPrice Skimming
Penetration PricingPenetration Pricing
OBJECTIVES
STRATEGIES
The Legality and Ethics of Price Strategy
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Unfair Trade PracticesUnfair Trade Practices
Price FixingPrice Fixing
Price DiscriminationPrice Discrimination
Predatory PricingPredatory Pricing
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Legality & Ethics of Price Strategy
i. Unfair trade practices-‘Unfair trade practice acts’ prohibit wholesaler and retailers from selling a product below cost-Reason-to protect small local firms from giant company.
ii. Pricing Fixing-An agreement between 2 or more firms on the price they will charge for a product
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Legality & Ethics of Price Strategy
iii. Price Discrimination-Offering different prices buyers and giving different supplementary services for different buyers.
iv. Predatory PricingA tactics that charging a very low price for a product with the intent of driving competitors out of business or out of a market
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Robinson-Patman Act Defenses for seller to Charge Price
Discrimination
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Seller Defenses Seller Defenses Seller Defenses Seller Defenses
CostCost MarketConditions
MarketConditions CompetitionCompetitionCostCost
The 4-step of Setting the Right Price
4. Fine-tune the base price with pricing tactics-Fine tuning techniques are short-run approaches to adjust the base price for competition, to cater unique demand and meet promotional and positioning goals.-Include various sorts of discount, geographic pricing and other pricing tactics
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Tactics for Fine-Tuning the Base Price
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Special pricing tactics Special pricing tactics
Discounts, Allowances, Rebates & Value-based pricing
Discounts, Allowances, Rebates & Value-based pricing
Geographic pricingGeographic pricing
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Discount, Allowances, rebate and Value Based Pricing
• Quantity discount• Cash Discount• Functional discount/ trade discount• Seasonal discount• Promotional allowance/ trade allowances• Rebates• Zero percent financing• Value base pricing
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Geographic Pricing
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Basing-point pricing
Basing-point pricing
Freight absorptionpricing
Freight absorptionpricing
Zone pricingZone pricing
Uniform delivered pricing
Uniform delivered pricing
FOB origin pricingFOB origin pricing
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Special Pricing Tactics
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Single-Price TacticSingle-Price Tactic
Flexible PricingFlexible Pricing
Professional ServicesProfessional Services
Price LiningPrice Lining
Leader Pricing Leader Pricing
Bait PricingBait Pricing
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Odd-Even PricingOdd-Even Pricing
BundlingBundling
(Unbundling)(Unbundling)
Two-Part PricingTwo-Part Pricing
Pricing During Difficult Economic Times
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Demand-Oriented TacticsDemand-Oriented Tactics
Cost-Oriented TacticsCost-Oriented Tactics
High InflationHigh InflationHigh InflationHigh Inflation
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Supplier Strategies During Recession
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Renegotiating contractsRenegotiating contracts
Offering helpOffering help
Keeping the pressure onKeeping the pressure on
Paring down suppliersParing down suppliers
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