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Chapter 7 Pricing Strategies

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Chapter 7 Pricing Strategies

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    1. Chapter 7 Pricing Strategies You don’t sell through price. You sell the price.

    2. The Learning Objectives Setting Pricing Policy Price-adjustment Strategies Price changes

    3. Pricing objectives Survival Maximum current profit Maximum market share Maximum market skimming Product-quality leadership

    4. Price - Quality Strategies

    8. Some important pricing definitions Utility: The attribute that makes it capable of want satisfaction Value: The worth in terms of other products Price: The monetary medium of exchange. Value Example: Caterpillar Tractor is $100,000 vs. Market $90,000 $90,000 if equal 7,000 extra durable 6,000 reliability 5,000 service 2,000 warranty $110,000 in benefits - $10,000 discount!

    9. Promotional Pricing Loss-leader pricing Special-event pricing Cash rebates Low-interest financing Longer payment terms Warranties & service contracts Psychological discounting

    11. Discriminatory Pricing

    13. Case discussion Circuit city:selling used cars like stereos

    14. 1.Setting Pricing Policy Selecting the pricing objectives Determining demand Estimating costs Analyzing competitors’ cost,prices,and offers Selecting a pricing method Selecting the final price

    15. Examples: new-product pricing Market-skimming pricing Market-penetration pricing

    16. Market-skimming pricing Setting a high price for a new product to skim maximum revenues layer by layer from the segments willing to pay the high price: the company makes fewer but more profitable sales.

    17. The conditions: A sufficient number of buyers have a high current demand; The unit costs of producing a small volume are not so high that they cancel the advantage of charging what the traffic will bear; The high initial price does not attract more competitors to market; The high price communicates the image of a superior product.

    18. Market-penetration pricing Setting a low price for a new product in order to attract a large number of buyers and a large market share.

    19. The conditions: The market is highly price sensitive,and a low price stimulates market growth; Production and distribution costs fall with accumulated production experience; A low price discourages actual and potential competition.

    20. Price sensitivity

    21. Examples: product mix pricing Product line pricing Optional-product pricing Captive-product pricing By-product pricing

    22. 2.pricing-adjustment strategies Discount and allowance pricing Segmented pricing Psychological pricing Promotional pricing Geographical pricing

    23. Discount and allowance pricing Cash discount Quantity discount Functional discount Seasonal discount allowance

    24. Geographical pricing FOB-origin pricing Uniform-delivered pricing Zone pricing Basing-point pricing Freight-absorption pricing

    25. 3. Pricing changing Initiating price cuts Initiating price increases

    27. Discussion Please explain the reasons for price cuts. Please explain the reasons for price increases. Please describe the advantage and disadvantage of price cuts and increases.

    28. The reasons for price cuts Excess capacity Price competition

    29. The reasons for price increases Cost inflation overdemand

    30. Reactions to price changes Customers’ reactions Competitor’s reactions

    31. Responding to competitors’ price changes Maintain price Maintain price and add value Reduce price Increase price and improve quality Launch a low-price fighter line

    33. Assignment: Read page P411---P415 Question 2, interactive marketing applications ,P423

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