Post on 26-Mar-2015
19Pricing Concepts
Professor Close
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
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)
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)
Priceline Commercial
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)
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 p’s– Why? (emphasize quality; & only one low price)– What products can you think of??
Taco Bell Commercial
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?
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
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)
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 @ unpopular times (storage;
heating oil)
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)
Summary
• Objectives: sales – status quo - profit
• Allowances & discounts
• Administered vs. flexible
• Read: – Robinson-Patman Act (pg. 509-510)– Skimming/Penetration Pricing (pg. 493-495)