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Learning Objectives

Learning Objectives. How should firms set their prices? What psychological factors affect the way consumers make pricing decisions? In what conditions should a price skimming or a market penetration strategy be used? What tactics do sellers use to reduce prices to retailers? To consumers?

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Learning Objectives

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  1. Learning Objectives • How should firms set their prices? • What psychological factors affect the way consumers make pricing decisions? • In what conditions should a price skimming or a market penetration strategy be used? • What tactics do sellers use to reduce prices to retailers? To consumers? • How can firms avoid legal and ethical problems with pricing issues.

  2. Payless Shoes Payless Website

  3. Pricing Strategies

  4. Cost-Based Methods • Cost-base pricing methods start with cost • All costs calculated on a per unit basis • Assumes costs don’t vary for different levels of production

  5. Competitor-Based Methods • Set prices to signal information of how product compares with competitors • Premium pricing Zillow Website

  6. Value-Based Methods • Setting prices that focus on the overall value of the product • Consumer perceptions Mercedes-Benz Commercial

  7. Improvement Value Method

  8. Costs of Ownership Method • Consumers may be willing to spend more initially if, over the lifetime, the product will eventually cost less to own • How do marketers justify the high cost of solar energy panels to homeowners?

  9. Check Yourself What are the three different strategies for setting pricing? How can you use value-based strategies for setting prices?

  10. Psychological Factors Affecting Value-Based Pricing Strategies

  11. Consumers’ Use of Reference Prices

  12. Reference Pricing • How do consumers use reference pricing when shopping for cars? • How does this ad help the consumer?

  13. Everyday Low Pricing vs.. High/Low Pricing High/low pricing Everyday low pricing (EDLP) vs..

  14. Odd Prices • Odd prices may be so traditional that sellers are afraid to round them off • They may suggest a good deal • They may also suggest low quality

  15. The Price-Quality Relationship • Most inexperienced consumers use price as an indicator of quality • Price becomes crucial when consumers have little knowledge about certain products/brands Wine ranges in price from under $5 a bottle to over $100K a bottle. How do you know which to choose?

  16. Check Yourself What are some psychological factors that affect pricing decisions? Explain the difference between EDLP and High/Low pricing?

  17. New Product Pricing

  18. Check Yourself What are alternative pricing strategies to consider in introducing a new product?

  19. Pricing Tactics Pricing tactics Pricing strategy

  20. Business to Business Pricing Tactics and Discounts

  21. Seasonal Discounts Designed to spur buyers into purchasing merchandise early

  22. Cash Discounts • Reduced invoice cost if buyer pays prior to the end of the discount period • Encourages buyers to pay before the discount period ends • Seller benefits either way

  23. Allowances • Lowers the final cost in return for specific behavior • Advertising allowance • Slotting allowance

  24. Quantity Discounts

  25. Uniform Delivered vs.. Zone Pricing Addresses the impact of shipping, which is often a major cost for manufacturers

  26. Pricing Tactics Aimed at Consumers

  27. Price Lining • Marketers establish a price floor and price ceiling and set prices in between • Allows for easy comparison

  28. Price Bundling

  29. Leader Pricing

  30. Consumer Price Reductions

  31. Markdowns • An integral component of high/low pricing strategy • Enables retailers to get rid of slow moving or obsolete merchandise • Used to generate store traffic

  32. Quantity Discounts for Consumers

  33. Seasonal Discounts Encourage consumers to use services or purchase products year round

  34. Coupons and Rebates Local Car Dealer Commercial

  35. Leasing

  36. Check Yourself What are some consumer-oriented pricing tactics? What are some retailer-oriented pricing tactics?

  37. Legal Aspects and Ethics of Pricing

  38. Deceptive or Illegal Price Advertising

  39. Predatory Pricing

  40. Price Discrimination

  41. Price Fixing Horizontal price fixing Vertical price fixing

  42. Check Yourself What common pricing practices are considered to be illegal or unethical?

  43. A cumulative quantity discount uses the amount purchased over a specified time period and usually involves several transactions. Glossary Return to slide

  44. Horizontal price fixing occurs when competitors that produce and sell competing products collude, or work together, to control prices, effectively taking price out of the decision process for consumers. Glossary Return to slide

  45. Price skimming is a strategy that occurs in many markets, and particularly for new and innovative products or services, and involves consumers being willing to pay a higher price to obtain the new product or service. Glossary Return to slide

  46. A reference price is the price against which buyers compare the actual selling price of the product and that facilitates their evaluation process. Glossary Return to slide

  47. With a uniform delivered pricing tactic, the shipper charges one rate, no matter where the buyer is located. Glossary Return to slide

  48. Vertical price fixing occurs when parties at different levels of the same marketing channel collude to control the prices passed on to consumers. Glossary Return to slide

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