McGraw-Hill/Irwin Copyright © 2009 by The McGraw-Hill Companies, Inc All Rights LEARNING OBJECTIVES (LO) AFTER READING CHAPTER 14, YOU SHOULD BE ABLE TO: LO1 LO2 Describe how to establish the “approximate price level” using demand-oriented, cost-oriented, profit-oriented, and competitionoriented approaches Recognize the major factors considered in deriving a final list or quoted price from the approximate price level 14-2 LEARNING OBJECTIVES (LO) AFTER READING CHAPTER 14, YOU SHOULD BE ABLE TO: LO3 LO4 Identify the adjustments made to the approximate price level on the basis of discounts, allowances, and geography Name the principal laws and regulations affecting specific pricing practices 14-3 FIGURE 14-1 The six steps in setting price The first three steps were covered in Chapter 13 and the last three steps in Chapter 14 14-4 FIGURE 14-2 Four approaches for selecting an approximate price level 14-5 LO1 STEP 4: SELECT AN APPROXIMATE PRICE LEVEL DEMAND-ORIENTED PRICING APPROACHES Skimming Pricing Penetration Pricing Prestige Pricing Price Lining 14-6 FIGURE 14-3 Demand curves for two demand-oriented pricing approaches 14-7 LO1 STEP 4: SELECT AN APPROXIMATE PRICE LEVEL DEMAND-ORIENTED PRICING APPROACHES Odd-Even Pricing Target Pricing Bundle Pricing 14-8 Concept Check What are the circumstances in pricing a new product that might support skimming or penetration pricing? A: A firm introducing a new product can use either skimming pricing to set the highest initial price that customers desiring the product are willing to pay or penetration pricing to set a low initial price to appeal immediately to the mass market Slide 14-12 Concept Check What is odd-even pricing? A: Odd-even pricing involves setting prices a few dollars or cents under an even number Psychologically, a $499.99 price feels lower than $500.00, even though the difference is 1¢ Slide 14-13 Above-, At-, or Below-Market Pricing Above-, at, or below-market pricing involves setting a market price for a product or product class based on a subjective feel for the competitors’ price or market price as the benchmark 14-64 Loss-Leader Pricing Loss-leader pricing involves deliberately selling a product below its customary price, not to increase sales, but to attract customers’ attention in hopes that they will buy other products as well 14-65 One-Price Policy A one-price policy involves setting one price for all buyers of a product or service Also called fixed pricing 14-66 Flexible Price Policy A flexible price policy involves setting different prices for products and services depending on individual buyers and purchase situations Also called dynamic pricing 14-67 Product Line Pricing Product line pricing involves the setting of prices for all items in a product line to cover the total cost and produce a profit for the complete line, not necessarily for each item 14-68 Price War A price war involves successive price cutting by competitors to increase or maintain their unit sales or market share 14-69 Quantity Discounts Quantity discounts are reductions in unit costs for a larger order 14-70 Promotional Allowances Promotional allowances are cash payments or extra amount of “free goods” awarded sellers in the channel of distribution for undertaking certain advertising or selling activities to promote a product 14-71 Everyday Low Pricing (EDLP) Everyday low pricing (EDLP) is the practice of replacing promotional allowances with lower manufacturer list prices 14-72 FOB Origin Pricing FOB origin pricing is the “free on board” (FOB) price the seller quotes that includes only the cost of loading the product onto the vehicle and specifies the name of the location where the loading is to occur (seller’s factory or warehouse) 14-73 Uniform Delivered Pricing Uniform delivered pricing is the price that the seller quotes includes all transportation costs 14-74 Basing-Point Pricing Basing-point pricing involves selecting one or more geographical locations (basing point) from which the list price for products plus freight expenses are charged to the buyer 14-75 Price Fixing Price fixing involves a conspiracy among firms to set prices for a product 14-76 Price Discrimination Price discrimination is the practice of charging different prices to different buyers for goods of like grade and quality 14-77 Predatory Pricing Predatory pricing is the practice of charging a very low price for a product with the intent of driving competitors out of business 14-78 ... 14-1 The six steps in setting price The first three steps were covered in Chapter 13 and the last three steps in Chapter 14 14-4 FIGURE 14-2 Four approaches for selecting an approximate price. .. ABLE TO: LO3 LO4 Identify the adjustments made to the approximate price level on the basis of discounts, allowances, and geography Name the principal laws and regulations affecting specific pricing... competitionoriented approaches Recognize the major factors considered in deriving a final list or quoted price from the approximate price level 14-2 LEARNING OBJECTIVES (LO) AFTER READING CHAPTER 14, YOU SHOULD