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Ch.18 And 19


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Ch.18 And 19

  1. 1. Pricing Concepts & Strategies<br />Intro to Marketing<br />Chapter18 & 19<br />
  2. 2. Pricing and the Law<br />Robinson- Patman Act<br />Prohibits price discrimination <br /> & selling at an unreasonably<br /> low price to eliminate competition<br />Unfair Trade Laws<br />Wal-Mart was found guilty of this in 1993 for selling drugs and health & beauty aids below cost<br />Fair Trade Laws<br />Allows manufacturers to stipulate minimum retail prices for their products <br />
  3. 3. Pricing Objectives<br />Profitability Objectives <br />Profit Maximization<br />The point where additional revenue is just balanced by the increase in total cost.<br />
  4. 4. Pricing Objectives (cont.)<br />Volume Objectives<br />Sales Maximization<br />Lowest acceptable profit level from which sales can be maximized<br />Market share objectives set prices so as to capture a certain portion of the market<br />
  5. 5. Pricing Objectives (cont.)<br />Meeting Competition Objectives<br />Value Pricing<br />Low priced but good quality<br />Emphasize the benefits a product has in comparison to the price<br />Pricing at Competition<br />
  6. 6. Pricing Objectives (cont.)<br />Value Pricing<br />Emphasizes benefits compared to price & quality<br />Used for low priced goods and services<br />Prestige Objectives<br />Using high prices to maintain a quality image with customers<br />
  7. 7. Methods of Determining Price<br />Applying Supply & Demand<br />Cost-oriented Analysis<br />Applying Customary Prices<br />
  8. 8. Price Determination:Cost and Revenue Curves<br />Variable costs change with the level of production<br />Fixed costs remain stable regardless of production level<br />Average total costs are calculated by dividing total variable and fixed costs by the number of units produced<br />
  9. 9. Elasticity<br />The measure of responsiveness of purchasers and suppliers to price changes<br />Elastic product: when the price goes up, demand for it goes down<br />Oranges<br />Inelastic Product: when the price goes up, the demand for the product doesn’t change very much<br />Cigarettes<br />Gasoline <br />
  10. 10. Price Determination In Practice<br />Cost-plus pricing - uses a base cost figure and adds a markup to cover costs and provide a profit<br />The most commonly used method of setting prices.<br />A retailer may add a 50% markup to all items<br />
  11. 11. Price determination in Practice (continued)<br />Breakeven analysis - determining the number of products or services that must be sold at a given price to generate sufficient revenue <br />
  12. 12. Pricing Strategies<br />Skimming pricing strategies<br />use of a relatively high price compared to prices of competing products<br />most commonly used as a market-entry price<br />Penetration pricing strategies<br />use low prices to attract consumer purchases<br />gain consumer goodwill and secure marketplace acceptance<br />Everyday Low Pricing<br />
  13. 13. Pricing Strategies (continued)<br />Competitive pricing strategies<br />price products at the general levels of competitive offerings<br />
  14. 14. Reductions From the List Price<br />Cash Discounts<br />reduction in price for prompt payment of a bill<br />Trade Discounts<br />Quantity Discounts<br />reductions for large-volume purchase<br />Trade-ins or Allowances<br />Rebates<br />FOB Plant- also called FOB Origin <br />Buyer pays all freight<br />
  15. 15. Pricing Policies<br />Psychological<br />Odd pricing<br />choosing prices ending in numbers not commonly used for price quotations<br />Unit Pricing<br />priced by unit of measurement<br />Price Flexibility<br />Allowing variable prices for different customers<br />Product Line <br />Loss Leaders<br />goods priced below cost to attract customers<br />