Part I: THE WORLD OF MARKETING. 1. An Overview of Marketing. 2. Strategic Planning for Competitive Advantage. 3. Ethics and Social Responsibility. 4. The Marketing Environment. 5. Developing a Global Vision. Part II: ANALYZING MARKET OPPORTUNITIES. 6. Consumer Decision Making. 7. Business Marketing. 8. Segmenting and Targeting Markets. 9. Marketing Research. Part III: PRODUCT DECISIONS. 10. Product Concepts. 11. Developing and Managing Products. 12. Services and Nonprofit Organization Marketing. Part IV: DISTRIBUTION DECISIONS. 13. Supply Chain Management. 14. Marketing Channels and Retailing. Part V: PROMOTION AND COMMUNICATION STRATEGIES. 15. Marketing Communications. 16. Advertising, Public Relations, and Sales Promotion. 17. Personal Selling and Sales Management. 18. Social Media and Marketing. Part VI: PRICING DECISIONS. 19. Pricing Concepts. 20. Setting the Right Price.
Setting the Right Price Chapter 20 Lamb, Hair, McDaniel 2014-2015 © Cengage Learning 2015 All Rights Reserved Describe the procedure for setting the right price Identify the legal and ethical constraints on pricing decisions Explain how discounts, geographic pricing, and other special pricing tactics can be used to finetune the base price Discuss product line pricing Describe the role of pricing during periods of inflation and recession © 2015 by Cengage Learning Inc All Rights Reserved How to Set a Price on a Product Describe the procedure for setting the right price © 2015 by Cengage Learning Inc All Rights Reserved Exhibit 20.1 New-Product Development Process Establish Establish pricing pricing goals goals Estimate Estimate demand, demand, costs, costs, and and profits profits Choose Choose aa price price strategy strategy Fine-tune Fine-tune with with pricing pricing tactics tactics Results lead to the right price © 2015 by Cengage Learning Inc All Rights Reserved Establish Pricing Goals Pricing objectives fall into three categories: Profit-Oriented Sales-Oriented Status Quo © 2015 by Cengage Learning Inc All Rights Reserved Choose a Price Strategy A basic, long-term pricing framework that establishes the initial price for a product and the intended direction for price movements over the product life cycle © 2015 by Cengage Learning Inc All Rights Reserved Choose a Price Strategy Price Price Skimming Skimming AAfirm firmcharges chargesaahigh highintroductory introductory price, price,often oftencoupled coupledwith withheavy heavy promotion promotion AAfirm firmcharges chargesaarelatively relativelylow lowprice price Penetration Penetration for a product initially as a way to for a product initially as a way to Pricing Pricing reach reachthe the mass massmarket market Status StatusQuo Quo Charging Chargingaaprice priceidentical identical to toor orvery very close Pricing closeto tothe thecompetition’s competition’sprice price Pricing © 2015 by Cengage Learning Inc All Rights Reserved Price Skimming Inelastic Demand Situations When Price Skimming Is Successful Unique Advantages/Superior Legal Protection of Product Technological Breakthrough Blocked Entry to Competitors © 2015 by Cengage Learning Inc All Rights Reserved Penetration Pricing Advantages Disadvantages Can lead to lower cost per unit as production expands Requires gear up for mass production Discourages or blocks competition from market entry Selling large volumes at low prices Boosts sales and provides large profit increases Strategy to gain market share may fail © 2015 by Cengage Learning Inc All Rights Reserved Status Quo Pricing Advantages Simplicity Safest route to long-term survival for small firms Disadvantages Strategy may ignore demand and/or cost © 2015 by Cengage Learning Inc All Rights Reserved 10 Product Line Pricing Discuss product line pricing 24 © 2015 by Cengage Learning Inc All Rights Reserved Product Line Pricing © 2015 by Cengage Learning Inc All Rights Reserved 25 Relationships among Products Complementary Complementary Substitutes Substitutes Neutral Neutral © 2015 by Cengage Learning Inc All Rights Reserved 26 Joint Costs © 2015 by Cengage Learning Inc All Rights Reserved 27 Pricing during Difficult Economic Times Describe the role of pricing during periods of inflation and recession 28 © 2015 by Cengage Learning Inc All Rights Reserved Inflation Cost-Oriented Cost-Oriented Tactics Tactics High High Inflation Inflation Demand-Oriented Demand-Oriented Tactics Tactics © 2015 by Cengage Learning Inc All Rights Reserved 29 Cost-Oriented Tactics Problems with Cost-Oriented Tactics • A high volume of sales on an item with a low profit margin may still make the item highly profitable • Eliminating a product may reduce economies of scale • Eliminating a product may affect the price-quality image of the entire line © 2015 by Cengage Learning Inc All Rights Reserved 30 Cost-Oriented Tactics • Delayed-quotation pricing: Used for industrial installations and many accessory items; firm price is not set until the item is finished or delivered • Escalator pricing: Final selling price reflects cost increases incurred between the order time and the delivery time • Hold prices constant, but add new fees © 2015 by Cengage Learning Inc All Rights Reserved 31 e ic e Pr eas cr In D ec reas D em e d and Cost-Oriented Tactics Maintaining a Fixed Gross Margin Increased Production Costs © 2015 by Cengage Learning Inc All Rights Reserved 32 Demand-Oriented Tactics Price Price Shading Shading © 2015 by Cengage Learning Inc All Rights Reserved 33 Demand-Oriented Tactics Cultivate Cultivate selected selected demand demand Strategies Strategies to to Make Make Demand Demand More More Inelastic Inelastic Create Create unique unique offerings offerings Change Change the the package package design design Heighten Heighten buyer buyer dependence dependence © 2015 by Cengage Learning Inc All Rights Reserved 34 Recession Value-Based Value-Based Pricing Pricing Bundling Bundling or or Unbundling Unbundling © 2015 by Cengage Learning Inc All Rights Reserved 35 Supplier Strategies during Recession Renegotiating Renegotiating contracts contracts Offering Offering help help Keeping Keeping the the pressure pressure on on Paring Paring down down suppliers suppliers © 2015 by Cengage Learning Inc All Rights Reserved 36 Chapter 20 Video BoltBus BoltBus is Greyhound’s express bus service that operates off curb-sides in major metropolitan areas This video clip covers BoltBus pricing decisions and how the company decides what the prices are as well as how it keeps costs down CLICK TO PLAY VIDEO 37 © 2015 by Cengage Learning Inc All Rights Reserved Part Video Scripps Networks Interactive Pricing Decisions Scripps Networks Interactive is a group of television networks including such popular channels as Food Network, HGTV, and The Cooking Channel In this clip, executives from Scripps discuss how they decide what pricing decisions to make based on their major audience, and how those decisions can also affect distribution and the content itself CLICK TO PLAY VIDEO 38 © 2015 by Cengage Learning Inc All Rights Reserved [...]... Demand-Oriented Tactics Tactics 5 © 201 5 by Cengage Learning Inc All Rights Reserved 29 Cost-Oriented Tactics Problems with Cost-Oriented Tactics • A high volume of sales on an item with a low profit margin may still make the item highly profitable • Eliminating a product may reduce economies of scale • Eliminating a product may affect the price-quality image of the entire line 5 © 201 5 by Cengage Learning Inc... Products Complementary Complementary Substitutes Substitutes Neutral Neutral 4 © 201 5 by Cengage Learning Inc All Rights Reserved 26 Joint Costs 4 © 201 5 by Cengage Learning Inc All Rights Reserved 27 Pricing during Difficult Economic Times Describe the role of pricing during periods of inflation and recession 28 5 © 201 5 by Cengage Learning Inc All Rights Reserved Inflation Cost-Oriented Cost-Oriented... customers © 201 5 by Cengage Learning Inc All Rights Reserved 22 Consumer Penalties Businesses impose consumer penalties if An irrevocable loss of revenue is suffered Additional transaction costs are incurred 3 © 201 5 by Cengage Learning Inc All Rights Reserved 23 Product Line Pricing Discuss product line pricing 24 4 © 201 5 by Cengage Learning Inc All Rights Reserved Product Line Pricing © 201 5 by Cengage...The Legality of Price Strategy Identify the legal and ethical constraints on pricing decisions 11 2 © 201 5 by Cengage Learning Inc All Rights Reserved The Legality of Price Strategy Unfair Unfair Trade Trade Practices Practices Price Price Fixing Fixing Price Price Discrimination Discrimination Predatory Predatory Pricing Pricing 2 © 201 5 by Cengage Learning Inc All Rights... quality 6 There must be significant competitive injury 2 © 201 5 by Cengage Learning Inc All Rights Reserved 14 Price Discrimination The Robinson-Patman Act of 1936: Seller Seller Defenses Defenses Cost Cost Market Market Conditions Conditions Competition Competition 2 © 201 5 by Cengage Learning Inc All Rights Reserved 15 Predatory Pricing 2 © 201 5 by Cengage Learning Inc All Rights Reserved 16 Tactics... Freight Absorption Pricing The seller pays for all or part of the freight charges and does not pass them on to the buyer Basing-Point The seller charges freight from a basing Pricing point, regardless of the city from which the goods are shipped © 201 5 by Cengage Learning Inc All Rights Reserved 21 Other Pricing Tactics Single-Price Tactic All goods offered at the same price Flexible Pricing Different customers... Demand More More Inelastic Inelastic Create Create unique unique offerings offerings Change Change the the package package design design Heighten Heighten buyer buyer dependence dependence 5 © 201 5 by Cengage Learning Inc All Rights Reserved 34 Recession Value-Based Value-Based Pricing Pricing Bundling Bundling or or Unbundling Unbundling 5 © 201 5 by Cengage Learning Inc All Rights Reserved 35 Supplier... chargefor foraaproduct product 2 © 201 5 by Cengage Learning Inc All Rights Reserved 13 Price Discrimination The Robinson-Patman Act of 1936: 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... Single-Price Tactic All goods offered at the same price Flexible Pricing Different customers pay different prices Trade-Ins Exchanging one item for a credit towards another Used often at car dealerships Professional Services Pricing Used by professionals with experience, training or certification Price Lining Several line items at specific price points Leader Pricing Sell product at near or below cost Bait Pricing... delivery time • Hold prices constant, but add new fees 5 © 201 5 by Cengage Learning Inc All Rights Reserved 31 5 e ic e Pr eas cr In D ec reas D em e d and Cost-Oriented Tactics Maintaining a Fixed Gross Margin Increased Production Costs © 201 5 by Cengage Learning Inc All Rights Reserved 32 Demand-Oriented Tactics Price Price Shading Shading 5 © 201 5 by Cengage Learning Inc All Rights Reserved 33 Demand-Oriented ... role of pricing during periods of inflation and recession © 201 5 by Cengage Learning Inc All Rights Reserved How to Set a Price on a Product Describe the procedure for setting the right price © 201 5... still make the item highly profitable • Eliminating a product may reduce economies of scale • Eliminating a product may affect the price-quality image of the entire line © 201 5 by Cengage Learning... right price © 201 5 by Cengage Learning Inc All Rights Reserved Establish Pricing Goals Pricing objectives fall into three categories: Profit-Oriented Sales-Oriented Status Quo © 201 5 by Cengage