Chapter 12 (setting the right price)
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Chapter 12 (setting the right price)

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  • Note to Instructor The text gives an excellent example of IKEA in China: When IKEA first opened stores in China in 2002, people crowded to take advantage of the freebies—air conditioning, clean toilets, and even decorating ideas. Chinese consumers are famously frugal. When it came time to actually buy, they shopped instead at local stores just down the street that offered knockoffs of IKEA’s designs at a fraction of the price. So IKEA slashed its prices in China to the lowest in the world. The penetration pricing strategy worked. IKEA now captures a 43 percent market share of China’s fast-growing home wares market.
  • Note to Instructor The text gives an excellent example of IKEA in China: When IKEA first opened stores in China in 2002, people crowded to take advantage of the freebies—air conditioning, clean toilets, and even decorating ideas. Chinese consumers are famously frugal. When it came time to actually buy, they shopped instead at local stores just down the street that offered knockoffs of IKEA’s designs at a fraction of the price. So IKEA slashed its prices in China to the lowest in the world. The penetration pricing strategy worked. IKEA now captures a 43 percent market share of China’s fast-growing home wares market.

Chapter 12 (setting the right price) Chapter 12 (setting the right price) Presentation Transcript

  • Fundamental Of Marketing MKT243 Chapter 12 Setting the Right Price MKT243 Fundamental OfDHD2009 1 Marketing
  • Slide Outline • How to set a price on a product • The legality and ethics of price strategy • Tactics for fine tuning the base price • Product line pricing • Pricing during inflation and recession • Price adjustment strategy MKT243 Fundamental OfDHD2009 2 Marketing
  • The 4-step of Setting the Right Price Establishing Pricing Goals Estimate Demand, Cost and Profits Choose a price strategy Fine tune the base price With pricing tactics Result lead to The right price MKT243 Fundamental OfDHD2009 3 Marketing
  • The 4-step of Setting the Right Price 1. Establishing pricing goals -Setting specific goals (objective: Profit- oriented, Sales-oriented or Status quo) -All pricing objectives have trade-offs that managers must weight. MKT243 Fundamental OfDHD2009 4 Marketing
  • The 4-step of Setting the Right Price 2. Estimate demand, costs, and profit -Estimating total revenue at a variety level of prices, determine, determine costs for each price, then estimate how much profit and how much market share can be earned. -3 basic approaches of price strategy MKT243 Fundamental OfDHD2009 5 Marketing
  • The 4-step of Setting the Right Price 3. Choose a Price Strategy -Price strategy-A basic, long-term pricing framework, which established the initial price for a product and the intended direction for price movements over the product life cycle -Setting a competitive price in a specific market segment MKT243 Fundamental OfDHD2009 6 Marketing
  • The 4-step of Setting the Right Price Pricing Strategiesa) Price SkimmingMarket-skimming pricing is a strategy with high initial prices to “skim” revenue layers from the marketThe company charges a high introductory price due to the heavy promotionAlso known as “market-plus” approachProvided that:• Product quality and image must support the price• Buyers must want the product at the price• Costs of producing the product in small volume should not cancel the advantage of higher prices MKT243 Fundamental Of 7• Competitors should not be able to enter the market easily DHD2009 Marketing
  • The 4-step of Setting the Right Priceb) Penetration Pricing Pricing StrategiesMarket-penetration pricing sets a low initial price in order to penetrate the market quickly and deeply to attract a large number of buyers quickly to gain market shareThe company charges a relatively low introductory price for a product to reach a mass market and to attract large number of buyersProvided that:• Price sensitive market• Inverse relationship of production and distribution cost to sales growth• Low prices must keep competition out of the MKT243 Fundamental Of market DHD2009 Marketing 8
  • The 4-step of Setting the Right Price Pricing Strategiesc) Status Quo PricingStatus Quo pricing is charging the customer with price that are identical to every close competition’s price.Also know as meeting the competitor or Going Rate PricingAdvantages-SimpleDisadvantages-This strategy may ignore demand or cost or bothDHD2009 MKT243 Fundamental Of Marketing 9
  • Pricing Objectives vs. Pricing Strategy Profit Oriented Profit Oriented Sales Oriented Sales Oriented OBJECTIVES Status Quo Oriented Status Quo Oriented Price Skimming Price Skimming Penetration Pricing Penetration Pricing STRATEGIES Status Quo Pricing Status Quo Pricing MKT243 Fundamental OfDHD2009 10 Marketing
  • The Legality and Ethics of Price Strategy Unfair Trade Practices Unfair Trade Practices Price Fixing Price Fixing Price Discrimination Price Discrimination Predatory Pricing Predatory Pricing MKT243 Fundamental Of2 DHD2009 Marketing 11
  • Legality & Ethics of Price Strategy i. Unfair trade practices -‘Unfair trade practice acts’ prohibit wholesaler and retailers from selling a product below cost -Reason-to protect small local firms from giant company. ii. Pricing Fixing -An agreement between 2 or more firms on the price they will charge for a product MKT243 Fundamental OfDHD2009 12 Marketing
  • Legality & Ethics of Price Strategy iii. Price Discrimination -Offering different prices buyers and giving different supplementary services for different buyers. iv. Predatory Pricing A tactics that charging a very low price for a product with the intent of driving competitors out of business or out of a market MKT243 Fundamental OfDHD2009 13 Marketing
  • Robinson-Patman Act Defenses for seller to Charge Price Discrimination Seller Defenses Seller Defenses Market Market Cost Cost Competition Competition Conditions Conditions MKT243 Fundamental OfDHD2009 14 Marketing
  • The 4-step of Setting the Right Price 4. Fine-tune the base price with pricing tactics -Fine tuning techniques are short-run approaches to adjust the base price for competition, to cater unique demand and meet promotional and positioning goals. -Include various sorts of discount, geographic pricing and other pricing tactics MKT243 Fundamental OfDHD2009 15 Marketing
  • Tactics for Fine-Tuning the Base Price Discounts, Allowances, Discounts, Allowances, Rebates & Value-based pricing Rebates & Value-based pricing Geographic pricing Geographic pricing Special pricing tactics Special pricing tactics MKT243 Fundamental Of3 DHD2009 Marketing 16
  • Discount, Allowances, rebate and Value Based Pricing • Quantity discount • Cash Discount • Functional discount/ trade discount • Seasonal discount • Promotional allowance/ trade allowances • Rebates • Zero percent financing • Value base pricing MKT243 Fundamental OfDHD2009 17 Marketing
  • Geographic Pricing FOB origin pricing FOB origin pricing Uniform delivered Uniform delivered pricing pricing Zone pricing Zone pricing Freight absorption Freight absorption pricing pricing Basing-point Basing-point pricing pricing MKT243 Fundamental Of3 DHD2009 Marketing 18
  • Special Pricing Tactics Single-Price Tactic Single-Price Tactic Odd-Even Pricing Odd-Even Pricing Flexible Pricing Flexible Pricing Bundling Bundling Professional Services Professional Services (Unbundling) (Unbundling) Price Lining Price Lining Two-Part Pricing Two-Part Pricing Leader Pricing Leader Pricing Bait Pricing Bait Pricing MKT243 Fundamental Of2 DHD2009 Marketing 19
  • Pricing During Difficult Economic Times Cost-Oriented Tactics Cost-Oriented Tactics High Inflation High Inflation Demand-Oriented Tactics Demand-Oriented Tactics MKT243 Fundamental Of5 DHD2009 Marketing 20
  • Supplier Strategies During Recession Renegotiating contracts Renegotiating contracts Offering help Offering help Keeping the pressure on Keeping the pressure on Paring down suppliers Paring down suppliers MKT243 Fundamental Of5 DHD2009 Marketing 21