19 Pricing Concepts

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19Pricing Concepts

• Professor Close

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Introduction to Pricing (1)

• Pricing strategy (nothing you buy is priced too
  high)
• Definition value given up for benefits firm
  offers (fuzzy good deal varies real estate)
• Positive easiest p to change determines
  revenues
• Negative difficult to evaluate different to
  gain advantage

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Introduction to Pricing (2)

• Pricing Strategy (cont)
• Reference price consumers ideas of what price
  should be (What for gallon gas? CD? Movie?)
• Flexibility
• Administered prices
• Firms decide on price vs mkt. (fluctuation is
  relatively uncommon)
• Channel conflict (MSRP)

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Introduction to Pricing (3)

• Pricing Strategy (cont)
• Flexibility
• One price same price to all under same
  conditions
• Flexibility price differs by customer
  negotiation
• Problem dissatisfaction searching for deals
  (texts)
• Easier now tech (freq. Shopper)
• Name your price (PriceLine)
• (-)
• Some dislike (autos)
• Customer satisfaction
• Habit forming (U.S. autos)

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Priceline Commercial
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Pricing Objectives (1)

• Sales Oriented amount sold in units, dollars,
  mkt share no ref. to profit
• Market share part of industry/area sales
• Measurement is easy
• Problem must have some profit (large sales ?
  profits Eastern airlines dot-coms)

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Pricing Objectives (2)

• Status Quo Oriented
• Happy where we are (problem not strategic Taco
  Bell)
• Form non price competition meet competition
• Ex. avoid price war
• Focus on other ps
• Why? (emphasize quality only one low price)
• What products can you think of??

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Taco Bell Commercial
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Pricing Objectives (3)

• Profit Oriented
• Target return
• Profit rel. to financial yardstick (sales,
  invest, industry avg.)
• () objective (driven by quarterly earnings)
• Satisfactory profits lifestyle, utilities
• Profit maximization most earnings possible
• Not necessarily high price (W-Mart mass merch.
  Concept)
• Should be goal of business
• Trick how do you know?

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Pricing Objectives (4)

• Allowances and Discounts
• Awarded for giving something up or doing it
  yourself
• Forms
• Sale (500) temporary reduction in list price
  adjust inventory quickly (excitement)
• Quantity disct decrease for buying more
• May be price cuts or additional goods (movie
  rentals freq. Flier)
• Cumulative
• For buying over time (Subway
• buy ten, one free)
• Loyalty
• Non-cumulative
• For one purchase
• Decrease storage

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Pricing Objectives (5)

• Allowances and Discounts (cont)
• ad allowance price reduction for downstream ads
• stocking allowance
• pay for retail space (Wal-Mart)
• mainly for new (justify costs)

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Pricing Objectives (6)

• Allowances and Discounts (cont)
• Push money/spiffs/p.m.
• Retailer incentives for aggressive selling
  (target sales force)
• Question incentives
• Trade-in price reduction for old items
• Seasonal buy _at_ unpopular times (storage heating
  oil)

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Payment Terms

• Net full amount
• Cash Discount reduction to pay early
• 2/10, net 30
• 2 discount if paid w/in 10 days
• full payment due in 30 (BIG take anyway)

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Summary

• Objectives sales status quo - profit
• Allowances discounts
• Administered vs. flexible
• Read
• Robinson-Patman Act (pg. 509-510)
• Skimming/Penetration Pricing (pg. 493-495)