Setting the Right Price

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Setting the Right Price
18
chapter
Prepared by Deborah Baker Texas Christian
University
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Learning Objectives
1. Describe the procedure for settingthe right
price. 2. Identify the legal and ethical
constraints on pricing decisions. 3. Explain
how discounts, geographic pricing, and other
special pricing tactics can be used to fine-tune
the base price.
18
chapter
3
Learning Objectives (continued)
4. Discuss product line pricing. 5. Describe
the role of pricing during periods of inflation
and recession.
18
chapter
4
Learning Objective
1
Describe the procedure for setting the right
price.
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Steps in Setting the Right Price
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6
Pricing Objectives
1
7
Price Strategy
1
A basic, long-term pricing framework, which
establishes the initial price for a product and
the intended direction for price movements over
the product life cycle.
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Choosing a Price Strategy
1
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Price Skimming
1
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Penetration Pricing
1
A pricing policy whereby a firm charges a
relatively low price for a product initially as a
way to reach the mass market.
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Penetration Pricing
1
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Status Quo Pricing
1
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Learning Objective
2
Identify the legal and ethical constraints on
pricing decisions.
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The Legality and Ethics ofPrice Strategy
2
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Unfair Trade Practice Acts
2
Laws that prohibit wholesalers and retailers from
selling below cost.
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Price Fixing
2
An agreement between two or more firms on the
price they will charge for a product.
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Price Discrimination
2

• The Robinson-Patman Act of 1936
• Prohibits any firm from selling to two or more
  different buyers at different prices if the
  result would lessen competition

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Robinson-Patman Act Defenses
Seller Defenses
2
Cost
Market Conditions
Competition
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Predatory Pricing
2
The practice of charging a very low price for a
product with the intent of driving competitors
out of business or out of a market.
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Learning Objective
3
Explain how discounts, geographic pricing, and
other special pricing tactics can be used to
fine-tune the base price.
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Tactics for Fine-Tuning the Base Price
3
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Tactics for Fine-Tuning the Base Price
3
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Value-Based Pricing
3
The price is set at a level that seems to the
customer to be a good price compared to the
prices of other options.
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Trade Loading
3
The practice of temporarily lowering the price to
induce wholesalers and retailers to buy more
goods than can be sold in a reasonable time.
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Geographic Pricing
3
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Geographic Pricing
3
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Geographic Pricing
3
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Special Pricing Tactics
3
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Consumer Penalties
Businesses Impose Consumer Penalties if...
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An irrevocable loss of revenue is suffered
Additional transaction costs are incurred
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Learning Objective
4
Discuss product line pricing.
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Product Line Pricing
4
Setting prices for an entire line of products.
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Relationships among Products
4
Relationships Among Products
Complementary
Substitutes
Neutral
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Joint Costs
4
Costs that are shared in the manufacturing and
marketing of several products in a product line.
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Learning Objective
5
Describe the role of pricing during periods of
inflation and recession.
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Pricing During Difficult Economic Times
5
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Cost-Oriented Tactics
5
Problems with Cost-Oriented Tactics

• A high volume of sales on an item with a low
  profit margin may still make the item highly
  profitable
• Eliminating a product may reduce economies of
  scale
• Eliminating a product may affect the
  price-quality image of entire line

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Cost-Oriented Tactics
5
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Cost-Oriented Tactics
5
Maintaininga Fixed Gross Margin
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Price Shading
5
The use of discounts by salespeople to increase
demand for one or more products in a line.
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Demand-Oriented Tactics
5
Strategies to Make Demand More Inelastic
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Pricing During Recession
5
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Supplier Strategies During Recession
5