1. Pricing
• Importance of pricing
• Pricing strategies
• Determinants of price
• Pricing tactics

2. Importance of Pricing
• Pricing mistakes
– Overpricing
– Underpricing
• Pricing as an indicator of quality
• Value equation
Benefits
Value = Price
– Pricing as exchange
– Price parity not necessary
– Value parity is necessary

3. Pricing Strategies
• Generic strategies
– Price leader
– Price follower
– Price nicher
Automated Broker-
Online
Phone Assisted
Trades1
Trades Trades
<120 trades2
per year
AND $12.95 for Online Online
$999,999 or first 1,000 commission commission
less in shares5 + $5.00 + $25.00
household
balances3
120+ trades4
per year OR
Online Online
$1,000,000+
$8.95 commission commission
in
+ $5.00 + $25.00
household
balances3

4. Pricing Strategies
• Circumstantial strategies
– Penetration
• Market share
• Sales maximization
– Skimming
• Profit maximization
• Milking

5. Pricing Strategies
• iPad $499
• Kindle Fire $159

6. Pricing Strategies
• Hyundai Sonata $20,000
• Audi A7 $70,000

7. Determinants of Price
• Internal
– Costs
• Variable costs
• Fixed costs
• Markup pricing
• Break-even pricing
B/E = FC
P – VC
B/E = $1,000,000 = 200,000
$10 - $5
B/E = $1,000,000 = 500,000
$7 - $5
B/E = $1,000,000 = 100,000
$15 - $5

8. Determinants of Price
• Internal
– Margins
Retail price $5.00 (100%) (67%)
Wholesale price 3.00 (60%) (100%)
Manufacturer’s price 1.50 (30%) (Base)

9. Determinants of Price
• External
– Gouging
• Ethics
• Invite in competition
– Customers
• Supply and demand
• Price elasticity of demand
• Brand equity/reputation
• Internet/price transparency
– Competition
• Strategy

10. Determinants of Price
• External
– Government
• Price fixing
– Horizontal (unfair trade practices,
restraint of trade)
– Vertical
• Price discrimination
– Industrial goods
– Quality, cost of service,
performance of service
• Predatory pricing
• Deceptive pricing
– Former price comparisons
– Competitor comparisons
– MSRP comparisons
– Bait and switch

11. Determinants of Price
Gouging
Competition
Customers
Government
Internal

12. Pricing Tactics
• Differential pricing
– Single/variable price
– Buy/lease
– Second market discounting
– Periodic discounting/EDLP
• Inflationary pricing
– Increase price
– Decrease quantity
• Psychological pricing
– Prestige pricing
– Reference pricing
– Odd/even pricing

13. Pricing Tactics
• Product line pricing
– Captive pricing
– Two-part pricing
– Leader pricing
• Bait/leader
• Cherry picking
– Price lining
– Bundling
– Multiple unit pricing