25.ppt

Chapter 15
Designing Pricing
Strategies and
Objectives
Setting the Price
Adapting the Price
Initiating & Responding to Price Changes
Price
High Medium Low
High
Low
Product Quality
Med
Premium
Value
Medium
Value
Economy
Overcharging
Rip-Off
False
Economy
High
Value
Super
Value
Good-Value
Price - Quality Strategies
Setting Pricing Policy
1. Selecting the pricing
objective
2. Determining demand
3. Estimating costs
4. petitors’
costs, prices, and offers
5. Selecting a pricing
method
6. Selecting final price
Types of Costs
Total Costs
Sum of the Fixed and Variable Costs for a Given
Level of Production
Fixed Costs
(Overhead)
Costs that don’t
vary with sales or
production levels.
Executive Salaries
Rent
Variable Costs
Costs that do vary
directly with the
level of production.
Raw materials
The Three C’s Modelfor Price Setting
Costs
Competitors’
prices and
prices of
substitutes
Customers’
assessment
of unique
product
features
Low Price
No possible
profit at
this price
High Price
No possible
demand at
this price
Pricing Methods
Markup Pricing
Target Return Pricing
Perceived Value Pricing
Value Pricing
Going-Rate Pricing
Sealed-Bid Pricing
Some important pricing definitions
Utility: The attribute that makes it capable of want satisfaction
Value: The worth in terms of other products
Price: The ary medium of exchange.
Value Example: Caterpillar
Tractor is $100,000 vs. Market $90,000
$90,000 if equal
7,000 extra durable
6,000 reliability
5,000 service
2,000 warranty
$110,000 in benefits - $10,000 discount!
Promotional Pricing
Loss-leader pricing
Special-event pricing
Cash rebates
Low-interest financing
Longer payment terms
Warranties & service contracts
Psychological discounting
Psychological Pricing
Most Attractive?
Better Value?
Psychological reason to price this way?
A
32 oz.
$
B
26 oz.
$
Assume Equal Quality