Some Facets of Pricing

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Some Facets of Pricing

• Why your tank of gas leaves you less upset these
  days
• Is your cup of coffee a rip off?
• Cant we find the best bargains at auctions?
• Why does my bag of chips have more air in it?

2
What We Will Discuss Today
?

• Factors Affecting Prices
• Company factors
• Consumer factors
• Competitive factors
• Pricing Approaches
• Cost-based
• Consumer-based
• Competitor based

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Internal (Company) Factors 1

• Goals
• Survival
• Current Profit Maximization
• Market-Share Leadership
• Product-Quality Leadership
• Marketing Mix Strategy
• pricing decisions must be
• coordinated with other marketing mix
  variables
• Costs

4
Internal Factors 2

• Costs
• Variable Costs
• economies of scale
• experience curve
• Fixed Costs

5
External (Demand) Factors

• Market Structure
• Pure competition Price Marginal costs
• Monopolistic competition Price Range
• Oligopolistic competition Price based on
  competitors prices
• Pure monopoly Price ??
• Economics view
• Reality
• Consumer Perceptions of Value
• Price Elasticity of Demand

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What is an unFair Price?
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Consumer Perceptions of Price and Value

• Reference Price
• Assymetry of Losses and Gains
• Fair and Unfair Prices

8
Pricing Perception Issues

• Odd versus even prices
• Is 1.99 cheaper than 2.00?
• Why is tax not included in the price?

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Pricing Approaches

• Cost-Based Pricing
• Cost-plus pricing
• Break even analysis
• Target profit pricing
• Buyer-Based Pricing
• Perceived value
• Competition-Based Pricing

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Competition

• Bidding
• Sealed bidding chance of obtaining contract
  versus price
• Open bidding auctions
• Competitive Reactions
• hostile
• cooperative
• nature of the market?

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Price/Quality Strategies
Price
Superb Value Strategy
Premium Strategy
High-value Strategy
Quality
Overcharging Strategy
Medium-value Strategy
Good Value Strategy
Rip-off Strategy
False Economy Strategy
Economy Strategy
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A Geography Question

• Should we charge the same price to a customer in
  New York City as we do to a customer in Long
  Beach?

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Geographic Pricing 1

• FOB (free-on-board)Origin Pricing
• goods are placed free on board carrier upon which
  title passes to customer

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Geographic Pricing 2

• Uniform Delivered Pricing
• same price plus freight anywhere in U.S.
• Zone Pricing

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Discounts

• Why discount?
• How do we discount?

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Timing of Discounts
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Timing of Discounts

• seasonal discounts
• PLC discounting
• random discounting

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Types of Discounts 1

• price discrimination
• customer segment
• product form the expensive sheep bladder vitamin
• image pricing
• Loss Leader Discounts

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Types of Discounts 2

• Psychological discounts was 359, now 299.
• Coupons
• Cash Rebates

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A Typology of Customers and Strategies
Price Sensitivity
High Low
High
Time Sensitivity
EDLP
Focus on Convenience
Focus on List Prices, Quality
Low
Coupons
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How to Increase Prices?

• The List Price
• How much to increase prices?
• gradually JNDs
• all at once
• Decrease product size or quantity the shrinking
  candy bar

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What We Discussed Today

• Factors Affecting Prices
• Company factors
• Consumer factors
• Competitive factors
• Pricing Approaches
• Cost-based
• Consumer-based
• Competitor based