Pricing Strategies Breakeven Analysis by ynk10956

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									Pricing Products:
Pricing Considerations
and Strategies


                         10-1
Breakeven Analysis

                                                                       Total Revenue
                             12
Cost in Dollars (millions)




                             10                                                 Target Profit
                                                                                ($2 million)
                              8
                              6                                                Total Cost
                              4                                                Fixed Cost
                              2


                                  200      400        600       800    1,000
                                   Sales Volume in Units (thousands)
                                                                                     10-2
Competition-Based Pricing

                 Going-Rate
      Company Sets Prices Based on What
          Competitors Are Charging



                 Sealed-Bid
     ? Company Sets Prices Based on
      ? What They Think Competitors
               Will Charge
                                          10-3
New-Product Pricing Strategies
   Market-Skimming           Use Under These
                             Conditions:
 Setting a High Price for     Product’s Quality and
  a New Product to             Image Must Support Its
  “Skim” Maximum               Higher Price.
  Revenues from the            Costs Can’t be so High that
  Target Market.               They Cancel the Advantage
                               of Charging More.
 Results in Fewer, But        Competitors Shouldn’t be
  More Profitable Sales.
                               Able to Enter Market Easily
 I.e. Intel                   and Undercut the High
                               Price.
                                                    10-4
New-Product Pricing Strategies
Use Under These                 Market Penetration
Conditions:
  Market Must be Highly        Setting a Low Price for
  Price-Sensitive so a Low      a New Product in Order
  Price Produces More           to “Penetrate” the
  Market Growth.                Market Quickly and
  Production/Distribution       Deeply.
  Costs Must Fall as Sales
  Volume Increases.            Attract a Large Number
  Must Keep Out Competition     of Buyers and Win a
  & Maintain Its Low Price      Larger Market Share.
  Position or Benefits May
  Only be Temporary.           I.e. Dell
                                                    10-5
Which      pricing      strategy--market
skimming or market penetration--does
each of the following companies use?
  Wal-Mart
  Sony     (television  and  other   home
  electronics),
  Bic Corporation (pens, lighters, shavers,
  and related products), and
  IBM (personal computers).
                                         10-6
Product Mix-Pricing Strategies:
Product Line Pricing
                  Involves setting price
                  steps between various
                  products in a product
                  line based on:
                       Cost differences between
                       products,
                       Customer evaluations of
                       different features, and
                       Competitors’ prices.


                                          10-7
Product Mix-Pricing Strategies
   Optional-Product
     Pricing optional or
     accessory products sold
     with the main product.
     i.e camera bag.
   Captive-Product
     Pricing products that
     must be used with the
     main product. i.e. film.

                                 10-8
Product Mix-Pricing Strategies

 By-Product          Product-
   Pricing low-      Bundling
   value by-
                       Combining
   products to get
   rid of them and     several products
   make the main       and offering the
   product’s price     bundle at a
   more                reduced price.
   competitive.        I.e. theater
   I.e. sawdust,       season tickets.
   Zoo Doo
                                     10-9
Discount and Allowance Pricing

 Adjusting Basic Price to Reward Customers
           For Certain Responses


    Cash Discount         Seasonal Discount

   Quantity Discount     Trade-In Allowance

  Functional Discount   Promotional Allowance

                                              10-10
Segmented Pricing

 Selling Products At 2 or More Prices Even
  Though There is No Difference in Cost


  Customer - Segment     Location Pricing

    Product - Form        Time Pricing

                                            10-11
Psychological Pricing
                 Considers the psychology of
                 prices and not simply the
                 economics.
                 Customers use price less
                 when they can judge quality
                 of a product.
                 Price becomes an important
                 quality signal when
                 customers can’t judge
                 quality; price is used to say
                 something about a product.
                                        10-12
Promotional Pricing
  Loss Leaders
                                      Temporarily Pricing
   Special-Event Pricing              Products Below List
           Cash Rebates                 Price Through:

             Low-Interest Financing

                     Longer Warranties
                            Free Maintenance
                                         Discounts
                                                     10-13
Other Price Adjustment
Strategies
                        •Pricing products for customers
                          located in different parts of
Geographical Pricing      the country or world.
                        • i.e. FOB-Origin, Uniform-
                          Delivered, Zone, Basing-
                          Point, & Freight-Absorption.

                        • Adjusting prices for customers
International Pricing     in different counties.
                        • Price Depends on Costs,
                          Consumers, Economic
                          Conditions, Competitive
                          Situations, & Other Factors.
                                                   10-14
Initiating Price Changes


         Why?                   Why?
    Excess Capacity         Cost Inflation
  Falling Market Share       Overdemand:
    Dominate Market         Company Can’t
  Through Lower Costs    Supply All Customers’
                                Needs

                                             10-15
Reactions to Price Changes
Price Cuts Are Seen by Buyers As: Competitors Mostly React When:

        Being Replaced by              Number of Firms is
         Newer Models                       Small

     Current Models Are Not             Product is Uniform
          Selling Well
     Company is in Financial             Buyers are Well
           Trouble                          Informed
         Quality Has Been
            Reduced
      Price May Come Down
             Further
                                                           10-16
Assessing/Responding to Competitor’s
Price Changes




                               10-17

								
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