1. CHAPTER 4: PRICING CONSIDERATIONS DIPLOMA IN INTERNATIONAL BUSINESS (BUS2513)

2. Part 1 of 2 Pricing Decisions

3. Strategic Planning for Price Pricing objectives Target Market Price Promotion Place Product Geographic terms— who pays transportation and how Discounts and allowances— to whom and when Price levels over product life cycle Price flexibility

11. Demand Curve, Price-Quantity Relationship and Increase in Demand

12. Demand Curve, Relationship Between Price and Quantity for Prestige Products

13. Sample Demand Curve Slide 12-1 Figure 12.1 10 20 30 40 50 60 10,000 20,000 30,000 40,000 50,000 Price per Unit Quantity Demanded in Units

15. Elasticity Of Demand

17. Price Elasticity Of Demand Price Elasticity of Demand = (% Change In Quantity Demanded) % Change in Price

19. Costs And Their Relationships

20. Pricing Based on Cost Slide 12-6 Markup pricing a pricing approach that adds a percentage to the producer’s cost in order to arrive at a selling price. Rate of return pricing a pricing approach that involves total costs and then adding a desired rate of return to them to determine the selling price. Breakeven analysis a technique for determining the sales volume needed to cover all costs at a specific rate.

21. Typical Marginal Costs And Average Total Cost Relationship

22. Typical Marginal Revenue And Average Revenue Relationship

23. Combining Marginal Cost And Marginal Revenue Concepts For Optimal Profit

24. Marginal Analysis Relationships Dollars Profit Quantity Produced and Sold Dollars Quantity Produced and Sold Total Cost Total Revenue Marginal Cost Marginal Revenue

26. Determining The Break-Even Point

27. Breakeven Analysis Slide 12-7 Figure 12.5 Dollars Quantity Produced and Sold Total Cost Breakeven Point Total Revenue Loss Profit

28. Breakeven Point Breakeven Point = Fixed Costs Per-Unit Contribution to Fixed Costs (Price – Variable Costs)

29. Factors That Affect Pricing Decisions

30. Pricing Objectives Dollar or Unit Sales Growth Growth in Market Share Target Return Maximize Profits Meeting Competition Nonprice Competition Pricing Objectives Sales Oriented Profit Oriented Status Quo Oriented

38. Pricing Based on Competition Slide 12-8 Pricing Below Competition pricing to gain market share and attract cost-conscious buyers. Especially useful to companies with low cost positions. Matching Competition pricing at competitor’s levels with the intent of distinguishing the product in other ways. Common in oligopolies. Pricing Above Competition pricing for products that offer greater value, quality, convenience or prestige. Sealed-Bid Pricing pricing in which the buyer asks potential sellers to submit sealed bids containing the seller’s pricing and availabilities.

39. Discount Pricing Trade Quantity Seasonal Discount Pricing Sale Cash

40. Business-To-Business Price Discounting

48. Allowances Common Kinds of Allowances Advertising Allowance Push Money Allowance Trade-In Allowance Stocking Allowance

50. Geographic Pricing Policies Common Geographic Pricing Policies F.O.B. Uniform Delivered Freight Absorption Zone

52. Geographic Pricing Slide 13-7 Geographic Pricing Pricing a good or service according to where it is delivered. FOB Origin Pricing Seller’s price is for the goods at point of shipment, where title passes from buyer to seller. Uniform Delivered Pricing Seller’s price includes shipping; title passes where buyer receives the goods. Single-zone Pricing Pricing in which all buyers pay the same price, including delivery. Multiple-zone pricing Pricing in which buyers in different zones pay different delivery prices. FOB with freight allowed Pricing in which the seller allows the buyer to deduct shipping costs from the quoted price of the product. Basing point pricing Pricing in which the seller charges the quoted price plus the cost of delivering from a basing point where the product is made.

55. Psychological Pricing Slide 13-6 Table 13.3 Table 13.3 missing TYPE DESCRIPTION EXAMPLE Product Pricing Technique Prestige Pricing Definition Example Setting a high price to convey an image of high quality or exclusivity Odd-even pricing Bundle pricing Setting prices a few dollars or cents below a round number Offering several products as a package at a single price The Porsche 911 turbo coupe has a base price of $105,000. Office Depot advertises a GE cellular phone for $39.99. A hotel quotes a rate for an over-night stay that includes breakfast the next morning.

56. Price Level Policies “ Skim the cream” pricing involves selling at a high price to those who are willing to pay before aiming at more price-sensitive consumers. Price Quantity Initial skimming price Second price Final price Skimming Pricing Sell at high price before reducing to next price level and repeat

57. Price Level Policies a Price Quantity Penetration Pricing Whole market price Penetration pricing involves selling the whole market at one low price.

58. Penetration Pricing vs. Price Skimming Time $ New Product Pricing Strategies Price Skimming Penetration Pricing

59. Pricing Based on Customer Value Slide 12-9 Dominant Backward Pricing a pricing approach that involves setting a price by starting with the estimated price customers will pay and working backwards with retail and wholesale margins. Value Pricing a pricing approach that involves setting prices so that the exchange value is higher than the value of competing exchanges.

60. Value Pricing Fits with Strategy Planning Target Market and Competition Focus on Customer Requirements ???? ???? ???? ???? ???? $

61. Basic Value Positions Slide 13-1 Table 13.1 Price Level High relative to product class Value Position High value because of quality and prestige. Examples Nike athletic shoes (such as Air Jordans); dental work by a widely respected specialist. Keds tennis shoes; dental work by the neighborhood family dentist. High value because of good quality at a reasonable price. High value because of acceptable quality at a low price. Around average for product class Low relative to product class Generic or private-label shoes at a drugstore or discount store; dental work by students being trained at a university clinic.

62. Part 2 of 2 Setting Prices

64. Slide 13-2 Figure 13.2 Evaluate Customer Response and other Pricing Constraints Set Pricing Objectives Analyze Profit Potential Set Initial Price Make Price Adjustments as Needed The Pricing Process

65. Stages For Establishing Prices

66. Pricing Objectives And Typical Actions To Achieve Them

68. High-quality products are usually priced to reflect the quality level  © 2005 BMW of North America, LLC, used with permission. The BMW name and logo are registered trademarks.

71. Some prices are set higher than the competition to create an exclusive image  FIJI ® and all other trademarks, copyrights and intellectual property used herein are the property of FIJI Water Company LLC or its affiliates." Used by permission

74. Markup as % of Cost = Markup Cost = 15 45 = 33.3 % Markup as % of Selling Price = Markup Selling Price = 15 60 = 25.0 %

77. Point-of-sale service affects demand  Reprinted with permission of Lowe's Companies

80. Common Pricing Strategies

88. Consumers associate higher prices with higher quality  Reprinted with permission of Mannington Mills, Inc.

91. Special events are often seasonal and employ special-event pricing  Reprinted with permission of Montage, Inc.

93. Adjusting Prices Slide 13-5a Table 13.2 Discount Quantity discount Definition Example Reduction in the price per unit for purchasing a larger quantity Price reduction offered during times of slow demand Percentage reduction from list price offered to resellers A catalog for Gardener’s Supply Company offers 1 cedar planter for $32.95 and 2 or more for $30.00 each. A ski resort offers lower prices during the summer. Seasonal discount Trade discount Cash discount A publisher sells books to a chain of stores for a fraction of the retail price. Incentive for buyers to pay quickly or a lower price for payment of cash An organization receives an invoice that reads, “2/10 net 30.”

94. Adjusting Prices Slide 13-5b Table 13.2 Discount Trade-in allowance Definition Example Discount for providing a product along with monetary payment Price reduction in exchange for the reseller performing certain promotional activities A car dealer offers $1,000 off the list price in exchange for a buyer trading in her used car. A frozen-pizza maker gives a price break to a supermarket that promises to feature the product in its advertising. Promotional allowance

95. Adjusting Prices Slide 13-5c Table 13.2 Product Discount Promotional discount Definition Example Short-term discount to stimulate sales or convince buyers to try a product Setting prices near or below cost in order to attract customers to a store A Jiffy Lube franchise passes out flyers offering $5 off on an oil change; the discount is good for 30 days. A supermarket features bananas at 20 cents a pound and Pampers diapers at 50 percent off; the price is below cost, but the store expects buyers to purchase additional items selling at a profit. Loss leader pricing

96. Laws Limiting Pricing Practices Slide 12-10 Table 12.3 Law Price Fixing Resale Price Maintenance Deceptive Pricing Practices Price discrimination that lessens or damages competition; discrimination in the use of promotional pricing Dumping Pricing Practices Laws of most countries Sherman Antitrust Act Consumer Goods Pricing Act Federal Trade Commission Act Robinson-Patman Act

97. Pricing Product Lines Slide 13-4 Price Lining Uniform Pricing all books $40.00 all CD’s $15.95 all Cassettes $9.95 $1.00 $1.00 $1.00