Class starts at 12:45 via IM Be on time

1

• Class starts at 1245 via IM Be on time!
• IM
• (You will be on the entire class dont log off
  when you get on the conference call)
• I am DrSpencerChat
• I need your AOL IM chat ID and email ID today
  preferred!
• You can be on yourself or looking at the PC with
  someone else
• Everyone must be online via IM
• You can not get on in the Lab
• At 115 we will get on the conference call
• Conference Call Specifications
• [phone]
• 2221222
• There will be a PowerPoint you will need to
  access. I need your email address today to
  send it to you

2
PRICING
Double Click Here
3
Definition of Price

• Customer Price
• The amount of money the customer pays to obtain
  the right to use the product
• Cost of the Product
• All that the customer surrenders to use the
  product
• E.g. buying a car
• Insurance
• Gas and Maintenance
• Financing charges and parking fees
• Stress from driving in LA

4
The Kinked Demand Curve
Price
Quantity Sold
5
Price Points

• Often end just below a round number
• .99 price for lower price items
• .95 price for higher priced items
• Why does it work?
• People read Left to Right
• People minimizing processing time so ignore last
  digits and round to add up items.
• The last items tend to be ignored.
• Customers tend to associate low numbers with
  sales so having the .99 may make them think the
  price is lower.

6
Price the Surrogate Indicator

• We infer things about the product based on its
  price.
• The higher the price the higher the value
• Research has shown raising the price influences
  the sales of items such as
• Shirts, watches, radios, automobiles, etc.
• Groceries

7
Thought for the Day How do you Value your
salvation

• What did you get, what did you give for it?
• Luke 741-47 And Jesus answering said unto him,
  Simon, I have somewhat to say unto thee. And he
  saith, Master, say on. There was a certain
  creditor which had two debtors the one owed five
  hundred pence, and the other fifty. And when they
  had nothing to pay, he frankly forgave them both.
  Tell me therefore, which of them will love him
  most? Simon answered and said, I suppose that
  he, to whom he forgave most. And he said unto
  him, Thou hast rightly judged. And he turned to
  the woman, and said unto Simon, Seest thou this
  woman? I entered into thine house, thou gavest me
  no water for my feet but she hath washed my feet
  with tears, and wiped them with the hairs of
  her head. Thou gavest me no kiss but this woman
  since the time I came in hath not ceased to kiss
  my feet. My head with oil thou didst not anoint
  but this woman hath anointed my feet with
  ointment. Wherefore I say unto thee, Her sins,
  which are many, are forgiven for she loved much
  but to whom little is forgiven, the same loveth
  little. And he said unto her, Thy sins are
  forgiven.

8
The Overall Impact of Price

• What does it do to your profits for that product
  line?
• What does it do to your total profit margins?

9
The 100 Top Items

• Research shows that consumers have product picks
  that they watch which draw them to stores.
• People see the price on that item and go to the
  store to get that product.
• E.g. The price of milk or eggs can draw customers
  to go to a non-normal grocery store.
• The price of a DVD players drew people in such
  numbers to Walmart last Christmas that several
  people were trampled to death trying to get a
  player. Few customers bought only the DVD player

10
Purchase experience when drawn into a store due
to a sale
11
Price Discounts Advertising Decisions

• How large should the discount be?
• Should price comparisons be used?
• Price comparison based on reference prices
• Reference price what you compare the price of
  the product too.
• External reference price the price of a
  substitute product or the original non-discounted
  
• Internal Reference Price what you internally
  think is a fair price
• What verbal statements should accompany the price
  information?
• When and how often should price discounts be
  given
• All the time (Bulk, or special customer
  discounts)
• Irregular intervals (Sears did discounts weekly
  and found people were only buying sale items)

12
Does the customer believe

• Does the customer perceive the value
• Does the customer trust the seller
• Did they Inflate the MSRP
• Did they Raise price prior to sale
• Must seek to reassure the customer that the price
  discount is real
• Stress the impact of the price
• If price is high focus on the dollar amount they
  save
• (e.g. 100 off a 600 item dont mention 16
  discount)
• If price is low focus on the discount
• (e.g. 1 off a 3 item. 33 discount Dont
  mention its 1 off)
• If price is low focus and dollar amount
  relatively significant mention both.
• (e.g. 10 off a 30 item mention both dollar
  savings and percent savings.)
• Use declarative wording to reinforce the value
• Now only, Compare at, Special, Buy one get one
  free

13
Reducing the risk

• Price discounting is often aimed at reducing the
  risk of trying something one would not normally
  do
• Coupons
• Multiple item discounts
• Observed Pattern
• Sales increase when discount introduced
• Return to normal after the price reduction
• Stockpiling (repeat customers stock up while on
  sale)
• Competing brand users switch just for the sale
• Induced customers are not long term buyers but
  were only drawn to the sale
• Switched from a substitute only for the sale
  period.
• High quality Brands benefit more from sales and
  are hurt more when prices are increased

14
Factors that impact the price charged

• Perceived Value of the Product
• Convenience
• Availability of the Funds (amount of funds
  available to the consumer)
• For example rich people might be willing to pay
  more for everything
• For example people buy 25 more in a store if
  they plan to use a credit card
• The Advantages the Product has over Competitive
  Products
• Reaction of competitors to your price
• Underlying cost of the product