Selecting a Price Method

1
Selecting a Price Method

• Three Cs
• Customer Demand Schedule
• Cost Function
• Competitors Prices

Low Price High Price No Profit
No Demand Costs Competitors
Price Substitute Products Customers Asse
ssment Unique Features
2
Markup Pricing

• General Comments
• Most elementary pricing method
• Markups vary among different Goods
• Lack Logical Basis
• Misses two Cs
• Popular Approach
• Easy
• Price competition minimized
• Fairer to Buyers and Sellers

3
Target Return Pricing
Target Return Pricing TRP unit cost return x
invested unit sales
16 .20 x 1,000,000 20 50,000 Break
Even Volume BEV Fixed Cost/(price - VC)
300,000/(20 - 10) 30,000
4
Perceived-Value Pricing

• General Comments
• Buyers Perception
• Fits well with product-positioning
• Key accurate assessment of value

Attribute Quality Standard Offer Impurities lt
10/1,000,000 Premium Offer Impurities lt
1/1,000,000 Added Value 1.40
5
Value Pricing

• General Comments
• Low price for high-quality pricing
• Reengineering company operations
• Everyday low pricing (EDLP)
• Cost of sales/promotions
• Erosion of consumer confidence

Going Rate Pricing

• General Comments
• Price parity, popular
• Context
• Costs difficult to measure, response
  uncertain, Collective wisdom

6
Selecting the Final Price

• Psychological Pricing
• Price as Quality Indicator
• Reference Price (context)
• Marketing-Mix Elements
• Brand quality and advertising
• Highest
• Medium
• Lowest
• Impact of Price on Other Parties
• Price Discrimination
• Predatory Pricing