2000 Prentice Hall

Objectives
Setting the Price Adapting the Price Initiating & Responding to Price Changes

2000 Prentice Hall

Price - Quality Strategies

Price
High
Medium

Low
Super Value

High
Product Quality

Premium Value

High Value

Med

Overcharging

Medium Value

Good-Value

Low
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Rip-Off

False Economy

Economy

Setting Pricing Policy

1. Selecting the pricing objective 2. Determining demand 3. Estimating costs 4. Analyzing competitors costs, prices, and offers

5. Selecting a pricing method 6. Selecting final price

2000 Prentice Hall

Types of Costs
Fixed Costs (Overhead) Variable Costs
Costs that do vary directly with the level of production. Raw materials

Costs that dont vary with sales or production levels. Executive Salaries Rent

Total Costs
Sum of the Fixed and Variable Costs for a Given Level of Production
2000 Prentice Hall

The Three Cs Model for Price Setting

Low Price No possible profit at this price

Costs

Competitors prices and prices of substitutes

Customers High Price assessment No possible of unique demand at product this price features

2000 Prentice Hall

Pricing Methods
Markup Pricing Target Return Pricing Perceived Value Pricing Value Pricing Going-Rate Pricing Sealed-Bid Pricing

2000 Prentice Hall

Some important pricing definitions

Utility: The attribute Value Example: that makes it capable Caterpillar of want satisfaction Tractor is $100,000 vs. Market $90,000 Value: The worth in terms of other products $90,000 if equal 7,000 extra durable Price: The monetary 6,000 reliability medium of exchange. 5,000 service 2,000 warranty $110,000 in benefits $10,000 discount! 2000 Prentice Hall

Promotional Pricing
Loss-leader pricing Special-event pricing Cash rebates Low-interest financing Longer payment terms Warranties & service contracts Psychological discounting

2000 Prentice Hall

Psychological Pricing

Most Attractive?
Better Value?

A
32 oz.

$2.19

B
26 oz.

$1.99

Psychological reason to price this way?

Assume Equal Quality

2000 Prentice Hall

Discriminatory Pricing
Customer Segment Product-form

Location
Time
2000 Prentice Hall

Price-Reaction Program for Meeting a Competitors Price Cut

Has competitor cut his price? No
Hold our price at present level; continue to watch competitors price

No No Yes Is the price Is it likely to be How much has likely to permanent Yes his price been significantly Yes aprice cut? cut? hurt our sales? By less than 2% Include a cents-off coupon for the next purchase
2000 Prentice Hall

By 2-4% Drop price by half of the competitors price cut

By more than 4% Drop price to competitors price

Review
Setting the Price Adapting the Price Initiating & Responding to Price Changes

2000 Prentice Hall