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transcript
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Copyright Cengage Learning 2013All Rights Reserved
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Chapter 20: Setting the Right Price
Prepared & Designed by Laura Rush, B-books, Ltd.
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Copyright Cengage Learning 2013All Rights Reserved
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Learning Outcomes
Describe the procedure for settingthe right price
Identify the legal and ethical constraintson pricing decisions
Explain how discounts, geographic pricing,and other pricing tactics can be used to fine-tune the base price
Discuss product line pricingDescribe the role of pricing during periodsof inflation and recession
LO1
LO2
LO3
LO5
LO4
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How to Set a Price on a
Product or Service
Describe the procedure for
setting the right price.
LO1
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How to Set a Price on aProduct or Service
Fine tune with pricing tactics
Choose a price strategy
Estimate demand, costs, and profits
Establish pricing goals
Results lead to the right price
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Establish Pricing Goals
Profit-Oriented
Sales-Oriented
Status Quo
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Choose a Price Strategy
Price Strategy - A basic,
long-term pricing framework,which establishes the initialprice for a product and theintended direction for pricemovements over the product
life cycle.
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Choose a Price Strategy
Price skimming - A firm charges a highintroductory price, often coupled
with heavy promotion.
Penetration Pricing - A firm charges arelatively 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 competitions price.
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Price Skimming
Situations
WhenPrice
SkimmingIs
Successful
Unique Advantages/Superior
Legal Protection of Product
Blocked Entry to Competitors
Technological Breakthrough
Inelastic Demand
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Penetration Pricing
Discourages or blockscompetition frommarket entry
Boosts sales andprovides large profitincreases
Can justify production
expansion
Requires gear up formass production
Selling large volumesat low prices
Strategy to gain market
share may fail
Advantages Disadvantages
Online
http://www.iflyswa.com
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Status Quo Pricing
Advantages Disadvantages
Simplicity
Safest route tolong-term survivalfor small firms
Strategy mayignore
demandand/or cost
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Review Learning OutcomeSetting the Right Price
LO1
Establishpricegoals
Estimate demand,costs, and profits
Choose aprice strategy
Fine-tune
base price
Set price$x.yy
Evaluate
results
Skimming
Status quo
Penetration
Low $
High $
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The Legality and Ethics of
Price Strategy
Identify the legal andethical constraints
on pricing decisions.
LO
2
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The Legality and Ethics ofPrice Strategy
Unfair Trade Practices
Price Fixing
Price Discrimination
Predatory Pricing
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The Legality and Ethics of PriceStrategy
Unfair Trade Practices- Lawsthat prohibit wholesalers and
retailers from selling belowcost.
Price Fixing- An agreementbetween two or more firms on the
price they will charge for aproduct.
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Price Discrimination
1. There must be price discrimination.
2. Transaction must occur in interstate commerce.
3. Seller must discriminate by price among two or
more purchasers.
4. Products sold must be commodities or tangible
goods.5. Products sold must be of like grade and quality.
6. There must be significant competitive injury.
The Robinson-Patman Act of 1936:
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Price Discrimination
The Robinson-Patman Act of 1936:
Seller Defenses
Cost
Market
Conditions Competition
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Predatory Pricing
The practice of charging avery low price for a product
with the intent ofdriving competitors out of
business or out of a market.
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Tactics for Fine-Tuning the
Base Price
Explain how discounts,geographic pricing, and other
special pricing tactics can
be used to fine-tunethe base price.
LO
3
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Tactics for Fine-Tuning the BasePrice
Special pricing tactics
Discounts
Geographic pricing
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Discounts, Allowances, Rebates, andValue-Based Pricing
Quantity Discounts
Cash Discounts
Functional Discounts
Seasonal Discounts
Promotional Allowances
Rebates
Zero Percent Financing
Value-Based Pricing
Markdown Money
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Value-Based Pricing
Selling the price at a level
that seems to be a good price
compared to the prices of
other options.
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Pricing Products Too Low
1. Managers attempt to buy market share through
aggressive pricing.
2. Managers tend to make pricing decisionsbased on current costs, current competitor
prices, and short-term share gains rather than
on long-term profitability.
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Geographic Pricing
Basing-pointpricing
Freight absorption
pricing
Zone pricing
Uniform deliveredpricing
FOB origin pricing
Online
http://www.ups.com
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Geographic Pricing
FOB Origin
Pricing
UniformDeliveredPricing
Zone Pricing
FreightAbsorption
Pricing
Basing-PointPricing
The buyer absorbs the freight
costs from the shipping point(free on board).
The seller pays the freight chargesand bills the purchaser an
identical, flat freight charge.
The U.S. is divided into zones, anda flat freight rate is charged to customers in a
given zone.
The seller pays for all or part ofthe freight charges and does not
pass them on to the buyer.
The seller designates a location asa basing point and charges all buyers the
freight costs from that point.
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Other Pricing Tactics
Sing le-Price Tactic All goods offered at the same price
Flexible Pr icing Different customers pay different price
Professional
Services Pricing
Used by professionals with experience,training or certification
Pr ice Lin ing Several line items at specific price points
Leader Pr icing Sell product at near or below cost
Bait Pr icingLure customers through false or misleadingprice advertising
Odd-Even PricingOdd-number prices imply bargain
Even-number prices imply qualityPr ice Bundl ing
Combining two or more products in asingle package
Two -Part Pr icing Two separate charges to consume a single good
Pay What You WantAllowing customers to pay what they think a
product is worth
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Consumer Penalties
An irrevocableloss of revenue
is suffered
Additionaltransaction costs
are incurred
Businesses ImposeConsumer Penalties If...
Online
http://www.princesscruises.comhttp://www.carnival.com
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Review Learning OutcomeFine-Tuning the Base Price
LO3
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Product Line Pricing
Discuss product line pricing.
LO4
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Product Line Pricing
Online
http://www.beauty.com
Setting prices for an entire lineof products.
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Relationships Among Products
Complementary
Substitutes
Neutral
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Joint Costs
Costs that are shared in
the manufacturingand marketing of severalproducts in a product life.
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Pricing During Difficult
Economic Times
Describe the role of
pricing during periods
of inflation and recession.
LO5
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Inflation
Cost-Oriented Tactics
High Inflation
Demand-Oriented Tactics
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Cost-Oriented Tactics
A high volume of sales on an item with a lowprofit margin may still make the item highly
profitable.
Eliminating a product may reduce economiesof scale.
Eliminating a product may affect theprice-quality image of the entire line.
Problems with Cost-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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Cost-Oriented Tactics
IncreasedProduction
Costs
Maintaininga Fixed
Gross Margin
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Demand-Oriented Tactics
Price ShadingThe use ofdiscounts by
salespeople to increasedemand for one or
more products in a line.
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Demand-Oriented Tactics
Strategiesto MakeDemand
More Inelastic
Cultivate selected demand
Create unique offerings
Change the package design
Heighten buyer dependence
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Recession
Bundling or Unbundling
Value-Based Pricing
S li St t i D i
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Supplier Strategies DuringRecession
Renegotiating contracts
Offering help
Keeping the pressure on
Paring down suppliers
Review Learning Outcome
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Review Learning OutcomePricing During Inflation and Recession
LO
5
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Chapter 20 Company Clip
Managers from Method, ReadyMadeMag,
Sephora, and Acid+All talk about how they
set the right price on their products.
http://www.cengage.com/marketing/book_content/
9781111821647_lamb/videos/ch20.html
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Learning Inc. All Rights Reserved42
http://www.cengage.com/marketing/book_content/9781111821647_lamb/videos/ch20.htmlhttp://www.cengage.com/marketing/book_content/9781111821647_lamb/videos/ch20.htmlhttp://www.cengage.com/marketing/book_content/9781111821647_lamb/videos/ch20.htmlhttp://www.cengage.com/marketing/book_content/9781111821647_lamb/videos/ch20.html7/27/2019 LHM 12e ch20_PPT_IE
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Part 6 Video: Blu Dot
Blu Dot designs modern furniture with frugal
engineering to price it well below high end
European furniture with the same aesthetic.
http://www.cengage.com/marketing/book_content/
1439039429_lamb/part_videos/part06.html
Copyright 2013 by Cengage 43
http://www.cengage.com/marketing/book_content/1439039429_lamb/part_videos/part06.htmlhttp://www.cengage.com/marketing/book_content/1439039429_lamb/part_videos/part06.htmlhttp://www.cengage.com/marketing/book_content/1439039429_lamb/part_videos/part06.htmlhttp://www.cengage.com/marketing/book_content/1439039429_lamb/part_videos/part06.html