2. Pricing and the Law Robinson- Patman Act Prohibits price discrimination & selling at an unreasonably low price to eliminate competition Unfair Trade Laws Wal-Mart was found guilty of this in 1993 for selling drugs and health & beauty aids below cost Fair Trade Laws Allows manufacturers to stipulate minimum retail prices for their products
3. Pricing Objectives Profitability Objectives Profit Maximization The point where additional revenue is just balanced by the increase in total cost.
4. Pricing Objectives (cont.) Volume Objectives Sales Maximization Lowest acceptable profit level from which sales can be maximized Market share objectives set prices so as to capture a certain portion of the market
5. Pricing Objectives (cont.) Meeting Competition Objectives Value Pricing Low priced but good quality Emphasize the benefits a product has in comparison to the price Pricing at Competition
6. Pricing Objectives (cont.) Value Pricing Emphasizes benefits compared to price & quality Used for low priced goods and services Prestige Objectives Using high prices to maintain a quality image with customers
8. Price Determination:Cost and Revenue Curves Variable costs change with the level of production Fixed costs remain stable regardless of production level Average total costs are calculated by dividing total variable and fixed costs by the number of units produced
9. Elasticity The measure of responsiveness of purchasers and suppliers to price changes Elastic product: when the price goes up, demand for it goes down Oranges Inelastic Product: when the price goes up, the demand for the product doesn’t change very much Cigarettes Gasoline
10. Price Determination In Practice Cost-plus pricing - uses a base cost figure and adds a markup to cover costs and provide a profit The most commonly used method of setting prices. A retailer may add a 50% markup to all items
11. Price determination in Practice (continued) Breakeven analysis - determining the number of products or services that must be sold at a given price to generate sufficient revenue
12. Pricing Strategies Skimming pricing strategies use of a relatively high price compared to prices of competing products most commonly used as a market-entry price Penetration pricing strategies use low prices to attract consumer purchases gain consumer goodwill and secure marketplace acceptance Everyday Low Pricing
13. Pricing Strategies (continued) Competitive pricing strategies price products at the general levels of competitive offerings
14. Reductions From the List Price Cash Discounts reduction in price for prompt payment of a bill Trade Discounts Quantity Discounts reductions for large-volume purchase Trade-ins or Allowances Rebates FOB Plant- also called FOB Origin Buyer pays all freight
15. Pricing Policies Psychological Odd pricing choosing prices ending in numbers not commonly used for price quotations Unit Pricing priced by unit of measurement Price Flexibility Allowing variable prices for different customers Product Line Loss Leaders goods priced below cost to attract customers
