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Price planning and pricing strategy

Price planning and pricing strategy. Price is the value of a good or service Exchange: customer satisfaction for something else of value (money) Forms and types Purposes and objectives Planning considerations Legal and ethical issues Pricing policy and strategy. Price - Forms and types.

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Price planning and pricing strategy

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  1. Price planning and pricing strategy • Price is the value of a good or service • Exchange: customer satisfaction for something else of value (money) • Forms and types • Purposes and objectives • Planning considerations • Legal and ethical issues • Pricing policy and strategy

  2. Price - Forms and types • Forms and types • One-off (bus fare) • Recurring (rent) • Annual (magazine subscription) • Time based (university tuition) • Wages and salaries (labour) • Interest (money)

  3. Pricing - purposes and objectives • Revenue • Cover costs & expenses • Make profit • Product positioning • Competition - market share

  4. Price planning – considerations • Cover costs & expenses – profit • Break-even point • Demand elasticity • Diminishing marginal utility • Consumer perceptions of value

  5. Legal & ethical issues – “Don’ts” • Price fixing – creates illegal monopoly • Illegal • Predatory pricing – to bankrupt competitors • Creates monopoly • Illegal but … hard to prove • Price discrimination – different prices • Sometimes illegal, but • Hotels • Airlines • Cars • Price gouging – taking advantage of shortage • Not usually illegal

  6. Legal & ethical issues – “Do’s” • Unit pricing – $/litre, ¢/g • comparison shopping (grocery stores) • Truth in advertising • Prices, price reductions, price comparisons • Product availability & product claims

  7. Pricing policy and strategy • Bases (plural of basis) for pricing • Pricing through the product life cycle • Pricing strategies • Pricing process

  8. Bases for pricing • Costs • Mark-up: supplier cost + set % • Retail model • assumed to cover reselling costs & profit • Cost-plus: calculated costs + profit • Service model - eg. auto shop: • parts + labour (billed at premium rate) + shop supplies + … + … • Demand – willingness to pay • Competition – what others are charging • Is profit ever guaranteed?

  9. Product life cycle pricing • Strategies at introduction • Skimming (high) • Attracts competition • Continue into growth • Lower prices when growth slows • Penetration (low) • Continue through growth and beyond • Competition prevents change

  10. Pricing strategies • Product mix • Segmented pricing • Psychological pricing • Promotional pricing • Discounts and allowances

  11. Product mix pricing strategies • Price lining • Differentiate product lines • Chev., Buick, Cadillac • Option pricing • “… accessories sold separately” • Cars, Barbie • Captive products • Required accessories VERY expensive • Printers & ink cartridges • By-products • Selling waste saves cost • Wood chips, molasses • Bundle pricing • Buy together and save! • Rogers: Home phone + high speed internet + cell service • Geographic pricing • Extra delivery costs • Almost anything in Yukon, NWT, Nunavut • International pricing • Extra costs and currency exchange • Foreign magazines

  12. Segmented pricing strategies • Buyer identification • price sensitivity • Product design • price styles differently • Purchase location • Tokyo is expensive • Time of purchase • Peak periods, advance purchase People’s expectations and willingness to pay – max revenue

  13. Psychological pricing strategies • Odd-even • Odd = bargain • Even = quality • Prestige • High price = quality and status • Multiple unit price = value • 2-4-1 Pizza • Everyday low prices (ELDP) • No discounts … no need! • Honest Ed’s, Bad Boy

  14. Promotional pricing strategies • Loss leaders • Get you into the store • Mac’s Milk • Special-event • Boxing Day sales • Rebates and coupons • Customer has to do something • Magazine coupons, mail-in rebates Time is key – We want your business now!

  15. Discount and allowance strategies • Cash discounts • Visa keeps a cut • Saves risk: cheques may “bounce” • Saves interest: money now > money later • Quantity discounts • Selling a case saves finding other customers • Trade discounts • Wholesalers & retailers help you sell • Seasonal discounts • Turns inventory into $$ • Trade-in allowances • Buys your business before old car is dead • Reduces competition from private sales Cost is key – These save the seller money

  16. Pricing process • Decide pricing objectives • Contribute to company goals • Determine costs • Estimate demand • Decide strategy • Set prices

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