The document discusses various pricing strategies and methods for determining prices. It covers determining a base price using cost-plus pricing, demand pricing, or profit maximization analysis. It also discusses adjusting base prices over time based on objectives, competition, or quality perceptions. Various forms of price flexibility are outlined, including discounts, allowances, promotions, customization, and geographic or segment-based pricing policies.
2. What is Price?
Price is the sacrifice that one party
pays another to receive something
in exchange
For our case, price is a monetary
value charged by an organization
for the sales of its products
3. Determining the Base Price
Cost-Plus Pricing
Easiest, Often misleading
A simple allocation of fixed and
variable costs
Standard mark-up - a standard profit
margin
Target return pricing - a standard
amount of profit per item
Ignores demand (price sensitivity) and
fails to account for competition
4. Determining the Base Price
Demand Pricing
Based on the elasticity of demand
• Higher prices are favored with inelastic
– Price increases offset volume losses
• Lower prices are favored with elastic
– Volume increases offset price reductions
• Consumers are indifferent with unitary
demand
Breakeven analysis
Demand schedules
5. Determining the Base Price
Demand Pricing
Profit-Maximization
• Calculate the profit at each price point
on a demand curve and choose the
highest
• In other words, which price produces
the highest total contribution
• Verified by observing marginal revenue
and cost figures
6. Determining the Base Price
Demand Pricing
Where does demand information
come from?
• Analytic modeling
• Experiments
• Customer surveys
• Managerial judgement
10. Determining the Base Price
Ethical Legal
Strategic Pricing Concerns Concerns
Concerns
Objectives
Goal-setting/Objective-setting
Pricing to achieve a target ROI
Pricing to stabilize price and margin
Pricing to reach a target market share
Pricing to meet or prevent competition
Pricing for profit maximization
Pricing for survival
11. Determining the Base Price
Strategic Ethical
Legal Concerns
Concerns
Pricing
Concerns Penetration
Skimming Pricing Pricing Strategy
Strategy Maturity Decline
Growth
Introduction
New product pricing
Skimming Vs. Penetration
12. Determining the Base Price
Ethical Strategic
Legal Concerns
Concerns
Pricing
Penetration Concerns
Pricing Strategy
Skimming
Pricing Maturity Decline
Strategy
Growth
Introduction
High initial price for quick ROI
Inelastic demand
Price insensitivity by the market
13. Determining the Base Price
Ethical Strategic
Legal Concerns
Concerns
Pricing
Skimming Pricing Concerns
Strategy
Penetration
Pricing Maturity Decline
Strategy
Growth
Introduction
Low initial price with elastic demand
Volume for lower production costs
Imminent competition
14. Determining the Base Price
Ethical Legal
Strategic Pricing Concerns Concerns
Concerns
Price-Quality judgements
Customers uncertain about brand
quality prior to purchase look to
price
Customers look to price in high
risk purchases
15. Adjustments to Base Prices
Reasons base prices change over
time:
Variation in objectives over product
life cycle
• Introductory low prices, higher
decline prices
Competitive price moves
• Competitive forces dictate
modification of pricing
16. Price Flexing Discounts/Allowances
Reasons base prices change over time:
Price Flexing - Discounts/Allowances
To Consumer To Trade
Trade-in Allowances Functional Or Trade
Cash Discounts Seasonal
Rebates Quantity
Cash
Sales Promotion
17. Price Flexing Discounts/Allowances
To Consumer
Trade-in Allowances Usedto
Cash Discounts
encourage
consumers to
Rebates upgrade to newer
or more
expensive
products
18. Price Flexing Discounts/Allowances
To Consumer
Trade-in Allowances Seasonal or age-
Cash Discounts
based discounts
used to encourage
Rebates purchases
19. Price Flexing Discounts/Allowances
To Consumer
Trade-in Allowances After
the
Cash Discounts
purchase payment
made to the
Rebates consumer by the
producer
20. Price Flexing Discounts/Allowances
To Trade
Functional Or Trade Compensate the
trade for functions
Seasonal performed:
Buying & Selling
Quantity
Transportation
Storage
Cash Financing
Risk-taking
Sales Promotion Providing Information
Standardizing & Grading
21. Price Flexing Discounts/Allowances
To Trade
Functional Or Trade Permitsseasonal
Seasonal marketers to
maintain steady
Quantity production and to
Cash sustain
operations in out-
Sales Promotion
of-season lulls
23. Price Flexing Discounts/Allowances
To Trade
Functional Or Trade Induce larger-
quantity purchases
Seasonal and to reward
Quantity customers for
making fewer
Cash purchases but
Sales Promotion purchasing in larger
quantities
24. Price Flexing Discounts/Allowances
To Trade
Functional Or Trade Encourage prompt
payment from
Seasonal customers. Invoice
Quantity includes payment
terms and period of
Cash time that the cash
Sales Promotion discount is available
25. Price Flexing Discounts/Allowances
To Trade
Functional Or Trade Two percent off the
total invoice price if
Seasonal paid within 10 days
Quantity of the invoice date.
Otherwise the total
Cash invoice price is due
Sales Promotion in 30 days
2/10, Net 30
26. Price Flexing Discounts/Allowances
To Trade
Functional Or Trade Used by producers
Seasonal to encourage
greater purchases
Quantity or used to induce
Cash retailers to
provide shelf or
Sales Promotion
display space
27. Price Flexing Discounts/Allowances
To Trade
Functional Or Trade
Off-Invoice
Seasonal Allowances
Quantity
Bill-Back Allowances
Cash
Sales Promotion
Stocking Allowances
28. Other Forms of Price Flexing
Price shading
Salesperson reduces
base price because of the
need to secure a
large/important client
Price customizing
New technology allows
for transaction-by-
transaction
customization
29. Other Forms of Price Flexing
Price promotion
Sales, incentive pricing
Retailers began forward-
buying or diverting product
Every Day Low Pricing
(EDLP) is reducing the use
of price promotion
Couponing
Free-standing inserts (in
newspapers)
Point of purchase
30. Other Forms of Price Flexing
Pricing for different segments
Geographic segments
• Different prices in different zones
Usage segments
• Different prices for high volume users
Demographic segments
• Different prices for students, children, etc.
Time segments
• On- and off-season rates
32. Geographic Pricing Policies
FOB Basing-Point
Pricing Pricing
Zone Uniform
Delivered
Pricing Pricing
Using freight absorption pricing (FOB - Free
On Board) the seller pays or absorbs the
transportation charges
33. Geographic Pricing Policies
FOB Basing-Point
Pricing Pricing
Zone Uniform
Delivered
Pricing Pricing
Using zone pricing all consumers in the same
zone pay the same transportation charge
34. Geographic Pricing Policies
FOB Basing-Point
Pricing Pricing
Zone Uniform
Delivered
Pricing Pricing
Using basing-point pricing, all freight costs
are priced as if they originated from the same
basing point
35. Geographic Pricing Policies
FOB Basing-Point
Pricing Pricing
Zone Uniform
Delivered
Pricing Pricing
Using uniform delivered pricing all
consumers pay the same transportation
charges (average shipping expense to all
customers)
37. Pricing Policies
Prestige
Pricing
Loss-Leader Odd-Even
Pricing Pricing
Product Line
Pricing
Pricing at relatively high levels so as to
convey an image of high quality or
exclusivity
38. Pricing Policies
Prestige
Pricing
Loss-Leader Odd-Even
Pricing Pricing
Product Line
Pricing
Pricing policy which offers products at
prices below or near cost to attract
consumers from competitors’ stores
39. Pricing Policies
Prestige
Pricing
Loss-Leader Odd-Even
Pricing Pricing
Product Line
Pricing
Price lining is producing or marketing multiple
products at different price points
Bundling is marketing two or more products in a
single package for a special price
40. Pricing Policies
Prestige
Pricing
Loss-Leader Odd-Even
Pricing Pricing
Product Line
Pricing
Odd pricing refers to a price ending with an
odd number just under a round number
Even pricing is used to convey high quality
