Download - Chapter 7 Pricing Strategies
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Chapter 7 Pricing Strategies
You dont sell through price. You sell the price.
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The Learning ObjectivesSetting Pricing PolicyPrice-adjustment StrategiesPrice changes
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1.Pricing objectivesSurvivalMaximum current profitMaximum market shareMaximum market skimmingProduct-quality leadership
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Setting Pricing Policy1.Selecting the pricingobjective
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Types of Costs
Total CostsSum of the Fixed and Variable Costs for a Given Level of Production
Fixed Costs(Overhead)Costs that dontvary with sales or production levels.
Executive SalariesRent
Variable Costs
Costs that do varydirectly with the level of production.
Raw materials
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The Three Cs Modelfor Price SettingCostsCompetitorsprices andprices ofsubstitutesCustomersassessmentof uniqueproductfeatures
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Some important pricing definitionsUtility: The attribute that makes it capable of want satisfactionValue: The worth in terms of other productsPrice: The monetary medium of exchange.Value Example: CaterpillarTractor 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!
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Examples: new-product pricingMarket-skimming pricingMarket-penetration pricing
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Market-skimming pricingSetting a high price for a new product to skim maximum revenues layer by layer from the segments willing to pay the high price: the company makes fewer but more profitable sales.
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The conditions:A sufficient number of buyers have a high current demand;The unit costs of producing a small volume are not so high that they cancel the advantage of charging what the traffic will bear;The high initial price does not attract more competitors to market;The high price communicates the image of a superior product.
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Market-penetration pricingSetting a low price for a new product in order to attract a large number of buyers and a large market share.
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The conditions:The market is highly price sensitive,and a low price stimulates market growth;Production and distribution costs fall with accumulated production experience;A low price discourages actual and potential competition.
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Price sensitivity
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Examples: product mix pricingProduct line pricingOptional-product pricingCaptive-product pricingBy-product pricingCash rebatesLow-interest,longer warranties,free maintenance
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2.pricing-adjustment strategiesDiscount and allowance pricingSegmented pricingPsychological pricingPromotional pricingGeographical pricing
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Discount and allowance pricingCash discountQuantity discountFunctional discountSeasonal discount allowance
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Discriminatory Pricing
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Psychological PricingMost Attractive?Better Value?Psychological reason to price this way?Assume Equal Quality
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Geographical pricingFOB-origin pricingUniform-delivered pricingZone pricingBasing-point pricingFreight-absorption pricing
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Promotional PricingLoss-leader pricingSpecial-event pricingCash rebatesLow-interest financingLonger payment termsWarranties & service contractsPsychological discounting
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3. Pricing changingInitiating price cutsInitiating price increases
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DiscussionPlease explain the reasons for price cuts.Please explain the reasons for price increases.Please describe the advantage and disadvantage of price cuts and increases.
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The reasons for price cutsExcess capacityPrice competition
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The reasons for price increasesCost inflationoverdemand
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Reactions to price changesCustomers reactionsCompetitors reactions
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Responding to competitors price changesMaintain priceMaintain price and add valueReduce priceIncrease price and improve qualityLaunch a low-price fighter line
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Price-Reaction Program for Meeting a Competitors Price CutHas competitorcut his price?
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Assignment:Read page P411---P415Question 2, interactive marketing applications ,P423