Chapter 14 - Arriving at the final price. After reading chapter 14, you should be able to: Describe how to establish the “approximate price level” using demand-oriented, cost-oriented, profit-oriented, and competition-oriented approaches; recognize the major factors considered in deriving a final list or quoted price from the approximate price level; identify the adjustments made to the approximate price level on the basis of discounts, allowances, and geography.
Copyright © 2015 McGrawHill Education. All rights reserved. No reproduction or distribution without the prior written consent of McGrawHill Education LEARNING OBJECTIVES (LO) AFTER READING CHAPTER 14, YOU SHOULD BE ABLE TO: LO 14-1 LO 14-2 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 142 LEARNING OBJECTIVES (LO) AFTER READING CHAPTER 14, YOU SHOULD BE ABLE TO: LO 14-3 Identify the adjustments made to the approximate price level on the basis of discounts, allowances, and geography LO 14-4 Name the principal laws and regulations affecting specific pricing practices 143 VIZIO, INC.—WHERE VISION MEETS VALUE™ IN HDTV 144 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 14 145 FIGURE 14-2 Four approaches for selecting an approximate price level 146 LO 14-1 STEP 4: SELECT AN APPROPRIATE PRICE LEVEL DEMAND-ORIENTED PRICING APPROACHES Skimming Pricing Penetration Pricing Prestige Pricing Price Lining Rolex Ad 147 LO 14-1 MARKETING MATTERS Energizer’s Lesson in Price Perception—Value 148 FIGURE 14-3 For prestige pricing, the demand curve for high-quality products is backwards sloping 149 FIGURE 14-4 For price lining, the demand curve is elastic at each price point but inelastic between price points 1410 LO 14-3 STEP 6: MAKE SPECIAL ADJUSTMENTS TO THE LIST OR QUOTED PRICE DISCOUNTS Trade (Functional) Discounts Cash Discounts 1425 FIGURE 14-8 The structure of trade discounts affects the manufacturer’s selling price and the margins made by resellers in the marketing channel 1426 LO 14-3 STEP 6: MAKE SPECIAL ADJUSTMENTS TO THE LIST OR QUOTED PRICE ALLOWANCES Trade-In Allowances Promotional Allowances • Everyday Low Pricing (EDLP) 1427 LO 14-3 MARKETING MATTERS Everyday Low Prices at the Supermarket = Everyday Low Profits—Creating Customer Value at a Cost 1428 LO 14-3 STEP 6: MAKE SPECIAL ADJUSTMENTS TO THE LIST OR QUOTED PRICE GEOGRAPHICAL ADJUSTMENTS FOB Origin Pricing 1429 LO 14-3 STEP 6: MAKE SPECIAL ADJUSTMENTS TO THE LIST OR QUOTED PRICE GEOGRAPHICAL ADJUSTMENTS Uniform Delivered Pricing • Single-Zone Pricing U.S Postal Service Priority Mail Flat Rate Prices from Denver to anywhere in the U.S Envelope: $5.60 Small Box: $5.80 Medium Box: $12.35 Large Box: $16.85 1430 LO 14-3 STEP 6: MAKE SPECIAL ADJUSTMENTS TO THE LIST OR QUOTED PRICE GEOGRAPHICAL ADJUSTMENTS Uniform Delivered Pricing • Multiple-Zone Pricing 1431 LO 14-3 STEP 6: MAKE SPECIAL ADJUSTMENTS TO THE LIST OR QUOTED PRICE GEOGRAPHICAL ADJUSTMENTS Uniform Delivered Pricing • FOB with Freight-Allowed Pricing • Freight Absorption Pricing 1432 LO 14-3 STEP 6: MAKE SPECIAL ADJUSTMENTS TO THE LIST OR QUOTED PRICE GEOGRAPHICAL ADJUSTMENTS Uniform Delivered Pricing • Basing-Point Pricing 1433 FIGURE 14-9 Several pricing practices are affected by legal and regulatory restrictions, which benefit both consumers and firms 1434 LO 14-4 STEP 6: MAKE SPECIAL ADJUSTMENTS TO THE LIST OR QUOTED PRICE LEGAL & REGULATORY ASPECTS OF PRICING Price Fixing • Horizontal Price Fixing • Vertical Price Fixing Resale Price Maintenance • Rule of Reason 1435 LO 14-4 STEP 6: MAKE SPECIAL ADJUSTMENTS TO THE LIST OR QUOTED PRICE LEGAL & REGULATORY ASPECTS OF PRICING Price Discrimination Deceptive Pricing Geographical Pricing Predatory Pricing 1436 FIGURE 14-10 Five most common deceptive pricing practices 1437 LO 14-4 MARKETING INSITE So You Think You Know What “Free” Means? Think Again 1438 VIDEO CASE 14 CARMEX [B]: SETTING THE PRICE OF THE NUMBER ONE LIP BALM 1439 ... first three steps were covered in Chapter 13 and the last three steps in Chapter 14 145 FIGURE 14- 2 Four approaches for selecting an approximate price level 14 6 LO 14- 1 STEP 4: SELECT AN APPROPRIATE... Rolex Ad 14 7 LO 14- 1 MARKETING MATTERS Energizer’s Lesson in Price Perception—Value 14 8 FIGURE 14- 3 For prestige pricing, the demand curve for high-quality products is backwards sloping 14 9 FIGURE... Target Return-onInvestment Pricing 14 14 FIGURE 14- 5 Results of a spreadsheet simulation to select a price that will achieve a target return on investment 14 15 LO 14- 1 STEP 4: SELECT AN APPROPRIATE