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Pricing Strategies. Factors Affecting Price Setting. Pricing Objectives profit competition market share Cost ratio of fixed costs to variable costs economies of scale available to the firm cost structure of a firm relative to its competitors Competition Demand.
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Factors Affecting Price Setting • Pricing Objectives • profit • competition • market share • Cost • ratio of fixed costs to variable costs • economies of scale available to the firm • cost structure of a firm relative to its competitors • Competition • Demand
Classification of Price Strategies • Differential Pricing • same brand sold at different prices to consumers • Competitive Pricing • prices are set to exploit competitive position • Product Line Pricing • related brands are price to exploit mutual dependencies
Differential Pricing Strategies • Second Market Discounting • a firm sells its product in a secondary market at a discount • Periodic Discounting • hold price during “prime period” and discount to take advantage of price sensitive customers • Random Discounting (i.e., sales) • rely on uninformed consumer to pay regular price, yet take advantage of those that search for the lowest price
Competitive Pricing Strategies • Penetration Pricing • pricing as low as possible to take control of the market and keep competition out • Experience Curve Pricing • exploiting experience in manufacturing, marketing, etc. and economies of scale in pricing • Price Signaling • use price to signal quality • Geographic Pricing • basing price on geographic area • FOB • zone pricing • uniform delivered pricing • freight absorption pricing
Product Line Pricing Strategies • Price Bundling • pricing two or more products as a bundle at a price better than the aggregate prices of the items in the bundle • Premium Pricing • pricing different versions of the product at different prices to exploit consumer heterogeneity in demand • Image Pricing • a firm brings out an identical version of its current product with a different name (or model number) and a higher price • Complementary • pricing such that the loss in the sales of one product is covered by the profit from the sale of a relate product • captive pricing • two-part pricing • loss leader pricing
Government Regulation • Price Fixing • Deceptive Pricing • Price Discrimination • Promotional Pricing