CHAPTER 8 PRICING STRATEGY. Price Theory and Practice Incremental Pricing Bases for Price Decisions...
-
Upload
susan-booker -
Category
Documents
-
view
244 -
download
4
Transcript of CHAPTER 8 PRICING STRATEGY. Price Theory and Practice Incremental Pricing Bases for Price Decisions...
![Page 1: CHAPTER 8 PRICING STRATEGY. Price Theory and Practice Incremental Pricing Bases for Price Decisions Price Discounts Special Pricing Issues.](https://reader035.fdocuments.in/reader035/viewer/2022081421/56649e395503460f94b2b6c1/html5/thumbnails/1.jpg)
CHAPTER 8CHAPTER 8
PRICING STRATEGYPRICING STRATEGY
![Page 2: CHAPTER 8 PRICING STRATEGY. Price Theory and Practice Incremental Pricing Bases for Price Decisions Price Discounts Special Pricing Issues.](https://reader035.fdocuments.in/reader035/viewer/2022081421/56649e395503460f94b2b6c1/html5/thumbnails/2.jpg)
PRICING STRATEGY
• Price Theory and Practice
• Incremental Pricing
• Bases for Price Decisions
• Price Discounts
• Special Pricing Issues
![Page 3: CHAPTER 8 PRICING STRATEGY. Price Theory and Practice Incremental Pricing Bases for Price Decisions Price Discounts Special Pricing Issues.](https://reader035.fdocuments.in/reader035/viewer/2022081421/56649e395503460f94b2b6c1/html5/thumbnails/3.jpg)
PRICE THEORY AND PRACTICE
• Price Theory (Economics) - Dominance of pricing
• Pricing in Practice (Business) - Influence of non-price factors
![Page 4: CHAPTER 8 PRICING STRATEGY. Price Theory and Practice Incremental Pricing Bases for Price Decisions Price Discounts Special Pricing Issues.](https://reader035.fdocuments.in/reader035/viewer/2022081421/56649e395503460f94b2b6c1/html5/thumbnails/4.jpg)
P
Q
D
D D
D1
1
Shifting the demand curve to the right
(non-price)
![Page 5: CHAPTER 8 PRICING STRATEGY. Price Theory and Practice Incremental Pricing Bases for Price Decisions Price Discounts Special Pricing Issues.](https://reader035.fdocuments.in/reader035/viewer/2022081421/56649e395503460f94b2b6c1/html5/thumbnails/5.jpg)
USEFUL CONCEPTS FOR PRICING STRATEGY
• Price Elasticity– Elastic demand– Inelastic demand
• Cost Concepts– Fixed cost– Variable cost
![Page 6: CHAPTER 8 PRICING STRATEGY. Price Theory and Practice Incremental Pricing Bases for Price Decisions Price Discounts Special Pricing Issues.](https://reader035.fdocuments.in/reader035/viewer/2022081421/56649e395503460f94b2b6c1/html5/thumbnails/6.jpg)
INCREMENTAL PRICING
Using contribution to profit as the criteria for measuring profitability rather than net profit.
Contribution to Profit = Total Revenue – Variable Cost
Net Profit = Total Revenue – Total Cost
![Page 7: CHAPTER 8 PRICING STRATEGY. Price Theory and Practice Incremental Pricing Bases for Price Decisions Price Discounts Special Pricing Issues.](https://reader035.fdocuments.in/reader035/viewer/2022081421/56649e395503460f94b2b6c1/html5/thumbnails/7.jpg)
CONDITIONS FAVORABLE FOR INCREMENTAL PRICING
• Heavy Fixed Cost
• Excess Production Capacity
• Price-Sensitive Niche
• Isolate from Core Market
![Page 8: CHAPTER 8 PRICING STRATEGY. Price Theory and Practice Incremental Pricing Bases for Price Decisions Price Discounts Special Pricing Issues.](https://reader035.fdocuments.in/reader035/viewer/2022081421/56649e395503460f94b2b6c1/html5/thumbnails/8.jpg)
INCREMENTAL PRICING EXAMPLES
• Wall Street Journal
• Hotels
• Matinee movies
• Happy hour
![Page 9: CHAPTER 8 PRICING STRATEGY. Price Theory and Practice Incremental Pricing Bases for Price Decisions Price Discounts Special Pricing Issues.](https://reader035.fdocuments.in/reader035/viewer/2022081421/56649e395503460f94b2b6c1/html5/thumbnails/9.jpg)
WALL STREET JOURNAL(Yearly Rate)
Business Rate $150
Student Rate $50
Library Rate $300
![Page 10: CHAPTER 8 PRICING STRATEGY. Price Theory and Practice Incremental Pricing Bases for Price Decisions Price Discounts Special Pricing Issues.](https://reader035.fdocuments.in/reader035/viewer/2022081421/56649e395503460f94b2b6c1/html5/thumbnails/10.jpg)
INCREMENTAL PRICING OF SERVICES BY TIME
Hours in the Day Matinee movies
Days of the Week Weekend hotels
Seasons of the Year Income tax preparation
![Page 11: CHAPTER 8 PRICING STRATEGY. Price Theory and Practice Incremental Pricing Bases for Price Decisions Price Discounts Special Pricing Issues.](https://reader035.fdocuments.in/reader035/viewer/2022081421/56649e395503460f94b2b6c1/html5/thumbnails/11.jpg)
BASES FOR PRICE DECISIONS
• Based on Demand of Buyer
• Based on Cost of Seller
• Based on Competitor Prices
![Page 12: CHAPTER 8 PRICING STRATEGY. Price Theory and Practice Incremental Pricing Bases for Price Decisions Price Discounts Special Pricing Issues.](https://reader035.fdocuments.in/reader035/viewer/2022081421/56649e395503460f94b2b6c1/html5/thumbnails/12.jpg)
DEMAND-BASED PRICING
• New product pricing
• Perceived Value
• Yield Management
![Page 13: CHAPTER 8 PRICING STRATEGY. Price Theory and Practice Incremental Pricing Bases for Price Decisions Price Discounts Special Pricing Issues.](https://reader035.fdocuments.in/reader035/viewer/2022081421/56649e395503460f94b2b6c1/html5/thumbnails/13.jpg)
NEW PRODUCT PRICING
• New Product Skimming
• New Product Penetration
![Page 14: CHAPTER 8 PRICING STRATEGY. Price Theory and Practice Incremental Pricing Bases for Price Decisions Price Discounts Special Pricing Issues.](https://reader035.fdocuments.in/reader035/viewer/2022081421/56649e395503460f94b2b6c1/html5/thumbnails/14.jpg)
NEW PRODUCT SKIMMING
• Set high initial price
• Recover R&D quickly
• Drop prices over time
![Page 15: CHAPTER 8 PRICING STRATEGY. Price Theory and Practice Incremental Pricing Bases for Price Decisions Price Discounts Special Pricing Issues.](https://reader035.fdocuments.in/reader035/viewer/2022081421/56649e395503460f94b2b6c1/html5/thumbnails/15.jpg)
PRODUCT SKIMMING EXAMPLES
• Intel chips
• Flat panel TVs
• Smart Phones
![Page 16: CHAPTER 8 PRICING STRATEGY. Price Theory and Practice Incremental Pricing Bases for Price Decisions Price Discounts Special Pricing Issues.](https://reader035.fdocuments.in/reader035/viewer/2022081421/56649e395503460f94b2b6c1/html5/thumbnails/16.jpg)
NEW PRODUCT PENETRATION
• Set low initial price
• Gain market share
• Discourage competition
![Page 17: CHAPTER 8 PRICING STRATEGY. Price Theory and Practice Incremental Pricing Bases for Price Decisions Price Discounts Special Pricing Issues.](https://reader035.fdocuments.in/reader035/viewer/2022081421/56649e395503460f94b2b6c1/html5/thumbnails/17.jpg)
PRODUCT PENETRATION EXAMPLES
• Southwest airlines
• Two-Buck Chuck wine
• Samsung
![Page 18: CHAPTER 8 PRICING STRATEGY. Price Theory and Practice Incremental Pricing Bases for Price Decisions Price Discounts Special Pricing Issues.](https://reader035.fdocuments.in/reader035/viewer/2022081421/56649e395503460f94b2b6c1/html5/thumbnails/18.jpg)
PERCEIVED VALUE PRICING
• Rolex Watches
• 3M Post-It-Notes
• Business Lunches
![Page 19: CHAPTER 8 PRICING STRATEGY. Price Theory and Practice Incremental Pricing Bases for Price Decisions Price Discounts Special Pricing Issues.](https://reader035.fdocuments.in/reader035/viewer/2022081421/56649e395503460f94b2b6c1/html5/thumbnails/19.jpg)
YIELD MANAGEMENT PRICING
• Airlines
• Hotels
• Utility Pricing
![Page 20: CHAPTER 8 PRICING STRATEGY. Price Theory and Practice Incremental Pricing Bases for Price Decisions Price Discounts Special Pricing Issues.](https://reader035.fdocuments.in/reader035/viewer/2022081421/56649e395503460f94b2b6c1/html5/thumbnails/20.jpg)
COST-BASED PRICING
• Cost Plus
• Billable Hours
• Add-on Charges
• Markups
![Page 21: CHAPTER 8 PRICING STRATEGY. Price Theory and Practice Incremental Pricing Bases for Price Decisions Price Discounts Special Pricing Issues.](https://reader035.fdocuments.in/reader035/viewer/2022081421/56649e395503460f94b2b6c1/html5/thumbnails/21.jpg)
COST-BASED EXAMPLES
• Lawyer sets billable cost at $400 per hour
• Boeing has a cost-plus contract with NASA
• Star Furniture marks up their furniture 50% above cost
![Page 22: CHAPTER 8 PRICING STRATEGY. Price Theory and Practice Incremental Pricing Bases for Price Decisions Price Discounts Special Pricing Issues.](https://reader035.fdocuments.in/reader035/viewer/2022081421/56649e395503460f94b2b6c1/html5/thumbnails/22.jpg)
ADD-ON PRICE EXAMPLES
• Airlines
• Credit cards
• Telephone services
![Page 23: CHAPTER 8 PRICING STRATEGY. Price Theory and Practice Incremental Pricing Bases for Price Decisions Price Discounts Special Pricing Issues.](https://reader035.fdocuments.in/reader035/viewer/2022081421/56649e395503460f94b2b6c1/html5/thumbnails/23.jpg)
SPIRIT BAGGAGE FEES
Book Over Phone $10
Roller Bag $30
Water $3
Boarding Passes $10Printed at Airport
Booking Over Internet $17
![Page 24: CHAPTER 8 PRICING STRATEGY. Price Theory and Practice Incremental Pricing Bases for Price Decisions Price Discounts Special Pricing Issues.](https://reader035.fdocuments.in/reader035/viewer/2022081421/56649e395503460f94b2b6c1/html5/thumbnails/24.jpg)
COMPETITION – BASED PRICING
•Competitive Price Wars
•Lower Cost
•Administered Pricing
![Page 25: CHAPTER 8 PRICING STRATEGY. Price Theory and Practice Incremental Pricing Bases for Price Decisions Price Discounts Special Pricing Issues.](https://reader035.fdocuments.in/reader035/viewer/2022081421/56649e395503460f94b2b6c1/html5/thumbnails/25.jpg)
COMPETITION-BASED EXAMPLES
• HEB Price War
• Two Buck Chuck Wine
• Price of Basic Steel
![Page 26: CHAPTER 8 PRICING STRATEGY. Price Theory and Practice Incremental Pricing Bases for Price Decisions Price Discounts Special Pricing Issues.](https://reader035.fdocuments.in/reader035/viewer/2022081421/56649e395503460f94b2b6c1/html5/thumbnails/26.jpg)
TWO BUCK CHUCK WINE
• Sold only in Trader Joe’s gourmet stores
• Overproduction of California grapes
• Produce own grapes at very low cost
![Page 27: CHAPTER 8 PRICING STRATEGY. Price Theory and Practice Incremental Pricing Bases for Price Decisions Price Discounts Special Pricing Issues.](https://reader035.fdocuments.in/reader035/viewer/2022081421/56649e395503460f94b2b6c1/html5/thumbnails/27.jpg)
PARKER HANNIFIN PRICING STRATEGY
“A” Products High-volume commodities
“B” Products More specialized niches
“C” Products Limited Competition
“D” Products No direct competitor
![Page 28: CHAPTER 8 PRICING STRATEGY. Price Theory and Practice Incremental Pricing Bases for Price Decisions Price Discounts Special Pricing Issues.](https://reader035.fdocuments.in/reader035/viewer/2022081421/56649e395503460f94b2b6c1/html5/thumbnails/28.jpg)
PRICE DISCOUNTS
• Cash Discounts – 5% off at Spec’s if you pay by cash
• Seasonal Discounts – Cheaper prices on December 26
• Trade Discounts – Cheaper prices to Wholesalers
• Promotional Discounts – Weekend specials at Supermarkets
![Page 29: CHAPTER 8 PRICING STRATEGY. Price Theory and Practice Incremental Pricing Bases for Price Decisions Price Discounts Special Pricing Issues.](https://reader035.fdocuments.in/reader035/viewer/2022081421/56649e395503460f94b2b6c1/html5/thumbnails/29.jpg)
SPECIAL PRICING ISSUES
• Pricing Choices
• Other Pricing Options
• Psychological Pricing
• Questionable Pricing
• Price Stability/Competition
![Page 30: CHAPTER 8 PRICING STRATEGY. Price Theory and Practice Incremental Pricing Bases for Price Decisions Price Discounts Special Pricing Issues.](https://reader035.fdocuments.in/reader035/viewer/2022081421/56649e395503460f94b2b6c1/html5/thumbnails/30.jpg)
PRICING CHOICES
• Fixed Pricing – Price is fixed by the seller at any one period of time
• Negotiated Pricing – Price is negotiated between a buyer and a seller for each transaction
![Page 31: CHAPTER 8 PRICING STRATEGY. Price Theory and Practice Incremental Pricing Bases for Price Decisions Price Discounts Special Pricing Issues.](https://reader035.fdocuments.in/reader035/viewer/2022081421/56649e395503460f94b2b6c1/html5/thumbnails/31.jpg)
FIXED PRICING
• Paying the monthly telephone bill
• Buying canned goods at the supermarket
• Parking at the Reliant Stadium
![Page 32: CHAPTER 8 PRICING STRATEGY. Price Theory and Practice Incremental Pricing Bases for Price Decisions Price Discounts Special Pricing Issues.](https://reader035.fdocuments.in/reader035/viewer/2022081421/56649e395503460f94b2b6c1/html5/thumbnails/32.jpg)
NEGOTIATED PRICING
• Buying an automobile
• Selling a house
• Garage sale
• Showrooming
![Page 33: CHAPTER 8 PRICING STRATEGY. Price Theory and Practice Incremental Pricing Bases for Price Decisions Price Discounts Special Pricing Issues.](https://reader035.fdocuments.in/reader035/viewer/2022081421/56649e395503460f94b2b6c1/html5/thumbnails/33.jpg)
OTHER PRICING OPTIONS
• Freemium Pricing
• Reference Pricing
• A La Carte Cable Pricing
![Page 34: CHAPTER 8 PRICING STRATEGY. Price Theory and Practice Incremental Pricing Bases for Price Decisions Price Discounts Special Pricing Issues.](https://reader035.fdocuments.in/reader035/viewer/2022081421/56649e395503460f94b2b6c1/html5/thumbnails/34.jpg)
PSYCHOLOGICAL PRICING
• $199.95
• $.99
• Buy one, get one free
![Page 35: CHAPTER 8 PRICING STRATEGY. Price Theory and Practice Incremental Pricing Bases for Price Decisions Price Discounts Special Pricing Issues.](https://reader035.fdocuments.in/reader035/viewer/2022081421/56649e395503460f94b2b6c1/html5/thumbnails/35.jpg)
QUESTIONABLE PRICING
• Bait and Switch
• Price Gouging
• Price Fixing
• Pricing of E-Books
![Page 36: CHAPTER 8 PRICING STRATEGY. Price Theory and Practice Incremental Pricing Bases for Price Decisions Price Discounts Special Pricing Issues.](https://reader035.fdocuments.in/reader035/viewer/2022081421/56649e395503460f94b2b6c1/html5/thumbnails/36.jpg)
PRICE MODELS FOR E-BOOKS
•Wholesale model
•Agency model
![Page 37: CHAPTER 8 PRICING STRATEGY. Price Theory and Practice Incremental Pricing Bases for Price Decisions Price Discounts Special Pricing Issues.](https://reader035.fdocuments.in/reader035/viewer/2022081421/56649e395503460f94b2b6c1/html5/thumbnails/37.jpg)
WHOLESALE PRICING MODEL FOR SELLING E-BOOKS
•Book publisher sets list price at $25
•Seller buys at $12.50 and sells for $25
•Amazon.com buys at $12.50 and sells for $9.99
![Page 38: CHAPTER 8 PRICING STRATEGY. Price Theory and Practice Incremental Pricing Bases for Price Decisions Price Discounts Special Pricing Issues.](https://reader035.fdocuments.in/reader035/viewer/2022081421/56649e395503460f94b2b6c1/html5/thumbnails/38.jpg)
AGENCY PRICING MODEL FOR SELLING E-BOOKS
•Book publisher sets list price at $25
•Apple receives 30% of list price $7.50 sold through iPads
•All sellers are required to sell book at $25 (including Amazon.com)
![Page 39: CHAPTER 8 PRICING STRATEGY. Price Theory and Practice Incremental Pricing Bases for Price Decisions Price Discounts Special Pricing Issues.](https://reader035.fdocuments.in/reader035/viewer/2022081421/56649e395503460f94b2b6c1/html5/thumbnails/39.jpg)
WHO WANTS PRICE COMPETITION?
• Discount retailers
• Foreign competitors
• Firms with low costs
• Internet Sellers
![Page 40: CHAPTER 8 PRICING STRATEGY. Price Theory and Practice Incremental Pricing Bases for Price Decisions Price Discounts Special Pricing Issues.](https://reader035.fdocuments.in/reader035/viewer/2022081421/56649e395503460f94b2b6c1/html5/thumbnails/40.jpg)
WHO WANTS PRICE STABILITY?
• Oligopolies
• Small businesses
• Professional services
• Traditional brokers and agents