Pricing Strategies for Retail Pricing Strategies the price is what you pay the

							Pricing Strategies
 the price is what you pay, the
       value is what you
     receive…anonymous
       3 Potent Forces
 Image
  (premium or
  least price)
 Competition
  (nonprice)
 Value
  (objective or
  perceived)
              Rising Costs


   Communicate with customers
   Improve efficiency in the company
   Absorb the cost increases
   Emphasize the value of the product
   Anticipate rising costs/lock in prices early
          Pricing Factors

   Product/service          Economic conditions
    costs                    Business location
   Market factors           Seasonal
   Sales volume              fluctuations
   Competitors’ prices      Psychological factors
   Competitive              Credit
    advantage                 terms/purchase
   sensitivity               discounts
   Desired image            Customers’ price
        Customized or
       Dynamic Pricing



A pricing technique that sets different
 prices on the same products and
 services for different customers using
 the information that a company
 collects about its customers
   Pricing Strategies and
           Tactics
Introducing a New Product
 Getting the Product Accepted
  -revolutionary
  -evolutionary
  -me-too
 Maintaining the Market Share

 Earning a Profit
Pricing Strategies and Tactics
       Introducing a New
         Product
        Market
         Penetration
        Skimming

        Sliding down the
         Demand Curve
      Pricing Strategies and Tactics
Pricing Established Goods and Services
   Odd Pricing: sets prices that end in odd
    numbers to create the psychological impression
    of low prices
   Price Lining: greatly simplifies the pricing
    function by pricing different products at
    different price points, depending on quality,
    features, and cost
   Leader Pricing: involves marking down the
    normal price of a popular item in an attempt to
    attract more customers who make incidental
    purchases of other items at regular prices
 Strategies and Tactics (cont’d)
Geographic Pricing:

 zone: involves setting different prices for
 different territories because of different
 transportation costs

 delivered: charges all of its customers the
 same price regardless of location

 FOB-Factory: sells merchandise to
 customers who then also pay for the
 shipping costs
    Strategies and Tactics (cont’d)
   Opportunistic Pricing: involves charging
    customers unreasonably high prices when
    goods or services are in short supply
   Discounts: reductions from normal list
    prices, ex. Multiple-unit pricing: offering
    customers discounts if they purchase in
    quantity
   Bundling: involves grouping together several
    products into a package that offers extra
    value at a special price, ex. optional, captive,
    byproduct
   Suggested Retail Price: manufacturer
    suggestion
      Pricing Strategies for
            Retailers
   Markup: difference between cost of a
    product and its selling price
 Dollar Markup=Retail Price – Cost
 % Retail Markup=Dollar Markup/Retail Price
 % Cost Markup=Dollar Markup/Cost
Markup=Operating Expenses+Reductions+Profits
            Net Sales +Reductions
 Follow-the-Leader
 Below-Market Pricing
  Pricing Strategies
for Retailers (cont’d)
Sale Rack Shuffle
   clothing company makes a dress for $50
   Sells dress to retailer at $80
   Retailer marks dress up to $200
   If unsold after 8-12 weeks, marks down by
    25% to $150
   If still unsold, marks down further until it
    does. Clothing company and retailer agree
    how to share the cost of markdown.
 Pricing Strategies for
     Manufacturers
Direct Costing
 absorption costing: traditional
 method in which all manufacturing
 and overhead costs are absorbed into
 total cost
 variable costing: includes in the
 product’s cost only those that vary
 directly with the quantity produced.
 Pricing Strategies for
Manufacturers (cont’d)
Full Absorption Income Statement
Sales                               790,000
Cost of Goods
  Materials               250,500
  Direct Labor            190,200
  Factory Overhead         120,200 560,900
Gross Profit                        229,100
Operating Expenses
  General and Administrative 66,100
  Selling                   112,000
  Other                      11,000 189,100
Net Income                           40,000
Pricing Strategies for Manufacturers
               (cont’d)
Direct Cost Income Statement
Sales Revenue                           790,000
Variable Costs
  Materials                 250,500
  Direct Labor              190,200
Variable factory overhead      13,200     502,000
Contribution Margin (36.5%)               288,000
Fixed Costs
  Factory Overhead           107,000
  Fixed selling expenses      63,900
  General and Administrative 66,100
  Others                   11,000       248,000
Net Income                              40,000
        Pricing for
       Manufacturers
         (cont’d)
Computing the Break-Even
   Selling Price
Selling Price=
Profit + (Variable Cost/U x Qty Produced)
 +Total Fixed Cost
   Qty Produced
Pricing Strategies for
    Service Firms
 Hourly Rate
  with Profit
 With
  Materials
 Without
  Materials
Impact of Credit on
     Pricing
 Credit Cards
 Installment
  Credit
 Trade Credit