1、Pricing StrategiesPricing StrategiesChapter 12Chapter 12 12-2Objectives Learn the major strategies for Learn the major strategies for pricing imitative and new products.pricing imitative and new products.Understand how companies find a Understand how companies find a set of prices that maximizes the
2、 set of prices that maximizes the profits from the total product mix.profits from the total product mix.12-3Objectives Learn how companies adjust Learn how companies adjust their prices to take into account their prices to take into account different types of customers and different types of custome
3、rs and situations.situations.Know the key issues related to Know the key issues related to initiating and responding to price initiating and responding to price changes.changes.12-4Price is#1 factor Price is#1 factor influencing choice influencing choice of cellular of cellular companiescompaniesPri
4、ces in wireless Prices in wireless industry dropped industry dropped 25%in three 25%in three yearsyears Few companies Few companies were profitablewere profitablemLife ad campaign mLife ad campaign attempted to build attempted to build the AT&T wireless the AT&T wireless brand so consumers brand so
5、consumers would consider would consider value rather than value rather than just pricejust priceCampaign met with Campaign met with strong initial strong initial success success mLife:AT&T WirelessmLife:AT&T WirelessCase Study 12-5Definitions Market-Skimming PricingMarket-Skimming PricingSetting a h
6、igh price for a new product to Setting a high price for a new product to skim maximum revenues layer by layer skim maximum revenues layer by layer from segments willing to pay the high from segments willing to pay the high price.price.Market-Penetration PricingMarket-Penetration PricingSetting a low
7、 price for a new product in Setting a low price for a new product in order to attract a large number of buyers order to attract a large number of buyers and a large market share.and a large market share.12-6 Product Line PricingProduct Line PricingSetting price steps between product line Setting pri
8、ce steps between product line items.items.Price pointsPrice points Optional-Product PricingOptional-Product PricingPricing optional or accessory products Pricing optional or accessory products sold with the main productsold with the main productProduct Mix Pricing Strategies 12-7 Captive-Product Pri
9、cingCaptive-Product Pricing Pricing products that must be used Pricing products that must be used with the main productwith the main product High margins are often set for suppliesHigh margins are often set for suppliesServices:two-part pricing strategyServices:two-part pricing strategy Fixed fee pl
10、us a variable usage rateFixed fee plus a variable usage rateProduct Mix Pricing Strategies 12-8 By-Product PricingBy-Product Pricing Pricing low-value by-products to get Pricing low-value by-products to get rid of themrid of them Product Bundle PricingProduct Bundle PricingPricing bundles of product
11、s sold Pricing bundles of products sold togethertogetherProduct Mix Pricing Strategies 12-9Price Adjustment StrategiesDiscount/allowance Discount/allowance SegmentedSegmentedPsychologicalPsychologicalPromotionalPromotionalGeographicalGeographicalInternationalInternationalTypes of discountsTypes of d
12、iscountsCash discountCash discountQuantity discountQuantity discountFunctional(trade)discountFunctional(trade)discountSeasonal discountSeasonal discountAllowancesAllowancesTrade-in allowancesTrade-in allowancesPromotional allowancesPromotional allowancesStrategiesStrategies 12-10Price Adjustment Str
13、ategiesDiscount/allowanceDiscount/allowance SegmentedSegmentedPsychologicalPsychologicalPromotionalPromotionalGeographicalGeographicalInternationalInternationalTypes of segmented Types of segmented pricing strategies:pricing strategies:Customer-segmentCustomer-segmentProduct-form pricingProduct-form
14、 pricingLocation pricingLocation pricingTime pricingTime pricingAlso called revenue or Also called revenue or yield managementyield managementCertain conditions must Certain conditions must exist for segmented exist for segmented pricing to be effectivepricing to be effectiveStrategiesStrategies 12-
15、11Conditions Necessary for Conditions Necessary for Segmented Pricing EffectivenessSegmented Pricing Effectiveness Price Adjustment StrategiesMarket is segmentableMarket is segmentableLower priced Lower priced segments are not able segments are not able to resellto resellCompetitors can not Competit
16、ors can not undersell segments undersell segments charging higher pricescharging higher pricesPricing must be legalPricing must be legalCosts of segmentation can Costs of segmentation can not exceed revenues earnednot exceed revenues earnedSegmented pricing must Segmented pricing must reflect real d
17、ifferences in reflect real differences in customers perceived valuecustomers perceived value 12-12Price Adjustment StrategiesDiscount/allowanceDiscount/allowance SegmentedSegmentedPsychologicalPsychologicalPromotionalPromotionalGeographicalGeographicalInternationalInternationalThe price is used to s
18、ay The price is used to say something about the something about the product.product.Price-quality relationshipPrice-quality relationshipReference pricesReference pricesDifferences as small as Differences as small as five cents can be five cents can be importantimportantNumeric digits may have Numeri
19、c digits may have symbolic and visual symbolic and visual qualities that qualities that psychologically influence psychologically influence the buyerthe buyerStrategiesStrategies 12-13Price Adjustment StrategiesDiscount/allowanceDiscount/allowance SegmentedSegmentedPsychologicalPsychologicalPromotio
20、nalPromotionalGeographicalGeographicalInternationalInternationalTemporarily pricing Temporarily pricing products below the list products below the list price or even below costprice or even below costLoss leadersLoss leadersSpecial-event pricingSpecial-event pricingCash rebatesCash rebatesLow-intere
21、st financing,Low-interest financing,longer warranties,free longer warranties,free maintenancemaintenancePromotional pricing can Promotional pricing can have adverse effectshave adverse effectsStrategiesStrategies 12-14Promotional Pricing ProblemsPromotional Pricing Problems Price Adjustment Strategi
22、esEasily copied by Easily copied by competitorscompetitorsCreates deal-prone Creates deal-prone consumersconsumersMay erode brands May erode brands valuevalueNot a legitimate substitute Not a legitimate substitute for effective strategic for effective strategic planningplanningFrequent use leads to
23、Frequent use leads to industry price wars which industry price wars which benefit few firmsbenefit few firms 12-15Price Adjustment StrategiesDiscount/allowanceDiscount/allowance SegmentedSegmentedPsychologicalPsychologicalPromotionalPromotionalGeographicalGeographicalInternationalInternationalTypes
24、of geographic Types of geographic pricing strategies:pricing strategies:FOB-origin pricingFOB-origin pricingUniform-delivered Uniform-delivered pricingpricingZone pricingZone pricingBasing-point pricingBasing-point pricingFreight-absorption Freight-absorption pricingpricingStrategiesStrategies 12-16
25、Price Adjustment StrategiesDiscount/allowanceDiscount/allowance SegmentedSegmentedPsychologicalPsychologicalPromotionalPromotionalGeographicalGeographicalInternationalInternationalPrices charged in a Prices charged in a specific country depend specific country depend on many factorson many factorsEc
26、onomic conditionsEconomic conditionsCompetitive situationCompetitive situationLaws/regulationsLaws/regulationsDistribution systemDistribution systemConsumer perceptionsConsumer perceptionsCost considerationsCost considerationsStrategiesStrategies 12-17 Initiating Price Cuts is Desirable Initiating P
27、rice Cuts is Desirable When a Firm:When a Firm:Has excess capacityHas excess capacity Faces falling market share due to Faces falling market share due to price competitionprice competitionDesires to be a market share leaderDesires to be a market share leaderPrice Changes 12-18 Price Increases are De
28、sirable:Price Increases are Desirable:If a firm can increase profit,faces cost If a firm can increase profit,faces cost inflation,or faces greater demand than inflation,or faces greater demand than can be supplied.can be supplied.Methods of Increasing PriceMethods of Increasing Price Alternatives to
29、 Increasing PriceAlternatives to Increasing PriceReducing product size,using less Reducing product size,using less expensive materials,unbundling the expensive materials,unbundling the product.product.Price Changes 12-19 Buyer reactions to price changes must Buyer reactions to price changes must be
30、considered.be considered.Competitors are more likely to react to Competitors are more likely to react to price changes under certain price changes under certain conditions.conditions.Number of firms is smallNumber of firms is smallProduct is uniformProduct is uniformBuyers are well informedBuyers ar
31、e well informedPrice Changes 12-20 Respond To Price Changes Only If:Respond To Price Changes Only If:Market share/profits will be negatively Market share/profits will be negatively affected if nothing is changed.affected if nothing is changed.Effective action can be taken:Effective action can be tak
32、en:Reducing priceReducing price Raising perceived qualityRaising perceived quality Improving quality and increasing priceImproving quality and increasing price Launching low-price“fighting brand”Launching low-price“fighting brand”Price Changes 12-21 Pricing Pricing withinwithin Channel Levels Channe
33、l LevelsPrice-fixingPrice-fixing Competitors can not work with each other Competitors can not work with each other to set prices to set pricesPredatory pricingPredatory pricing Firms may not sell below cost with the Firms may not sell below cost with the intention of punishing a competitor or gaining intention of punishing a competitor or gaining higher long-run profits or running a competitor hig
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