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									©2000 Prentice Hall

Setting the Price  Adapting the Price  Initiating & Responding to Price Changes

©2000 Prentice Hall

Price - Quality Strategies
High High Product Quality
Premium Value Medium

Super Value

High Value



Medium Value


©2000 Prentice Hall


False Economy


Setting Pricing Policy
1. Selecting the pricing objective 2. Determining demand

3. Estimating costs
4. Analyzing competitors’ costs, prices, and offers 5. Selecting a pricing method 6. Selecting final price
©2000 Prentice Hall

Types of Costs
Fixed Costs (Overhead) Variable Costs
Costs that do vary directly with the level of production.
Raw materials

Costs that don’t vary with sales or production levels. Executive Salaries Rent

Total Costs
Sum of the Fixed and Variable Costs for a Given Level of Production
©2000 Prentice Hall

The Three C’s Model for Price Setting

Low Price No possible profit at this price


Competitors’ prices and prices of substitutes

Customers’ High Price assessment No possible of unique demand at product this price features

©2000 Prentice Hall

Pricing Methods
Markup Pricing  Target Return Pricing  Perceived Value Pricing  Value Pricing  Going-Rate Pricing  Sealed-Bid Pricing

©2000 Prentice Hall

Some important pricing definitions
Utility: The attribute Value Example: that makes it capable Caterpillar of want satisfaction Tractor is $100,000 vs. Market $90,000  Value: The worth in terms of other products $90,000 if equal 7,000 extra durable  Price: The monetary 6,000 reliability medium of exchange. 5,000 service 2,000 warranty $110,000 in benefits $10,000 discount! ©2000 Prentice Hall

Promotional Pricing
Loss-leader pricing  Special-event pricing  Cash rebates  Low-interest financing  Longer payment terms  Warranties & service contracts  Psychological discounting
©2000 Prentice Hall

Psychological Pricing

Most Attractive?
Better Value? Psychological reason to price this way?

32 oz.


 

26 oz.


Assume Equal Quality
©2000 Prentice Hall

Discriminatory Pricing
Customer Segment

Location Time
©2000 Prentice Hall

Price-Reaction Program for Meeting a Competitor’s Price Cut
Has competitor cut his price? No Hold our price at present level; continue to watch competitor’s price

No No Yes Is the price Is it likely to be How much has likely to permanent Yes his price been significantly Yes aprice cut? cut? hurt our sales? By less than 2% Include a cents-off coupon for the next purchase
©2000 Prentice Hall

By 2-4% Drop price by half of the competitor’s price cut

By more than 4% Drop price to competitor’s price

Setting the Price  Adapting the Price  Initiating & Responding to Price Changes

©2000 Prentice Hall

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