19 Pricing Concepts Professor Close Introduction to

19 Pricing Concepts Professor Close

Introduction to Pricing (1) • Pricing strategy (nothing you buy is priced too high) – Definition: value given up for benefits firm offers (fuzzy: good deal varies; real estate) • Positive: easiest “p” to change; determines revenues • Negative: difficult to evaluate; different to gain advantage

Introduction to Pricing (2) • Pricing Strategy (cont…) – Reference price: consumers’ ideas of what price “should” be (What for gallon gas? CD? Movie? ) – Flexibility • Administered prices – Firms decide on price vs mkt. (fluctuation is relatively uncommon) – Channel conflict (MSRP)

Introduction to Pricing (3) • Pricing Strategy (cont…) – Flexibility • • • One price: same price to all under same conditions Flexibility: price differs by customer; negotiation Problem: dissatisfaction; searching for deals (texts) Easier now – tech (freq. Shopper) “Name your price” (Price. Line) (-) – – – Some dislike (autos) Customer satisfaction “Habit” forming (U. S. autos)

Priceline Commercial

Pricing Objectives (1) • Sales Oriented: amount sold in units, dollars, mkt share – no ref. to profit • • • Market share: part of industry/area sales Measurement is easy Problem: must have some profit (large sales profits; Eastern airlines; dot-coms)

Pricing Objectives (2) • Status Quo Oriented: • Happy where we are (problem: not strategic; Taco Bell) • Form: non price competition; meet competition – – Ex. avoid price war Focus on other p’s Why? (emphasize quality; & only one low price) What products can you think of? ?

Taco Bell Commercial

Pricing Objectives (3) • Profit Oriented • Target return – Profit rel. to financial yardstick (sales, invest, industry avg. ) – (+) objective (driven by quarterly earnings) – Satisfactory profits: lifestyle, utilities • Profit maximization: most earnings possible… – Not necessarily high price (W-Mart; mass merch. Concept) – Should be goal of business – Trick: how do you know?

Pricing Objectives (4) • Allowances and Discounts • • Awarded for giving something up or doing it yourself Forms – – Sale (500) temporary reduction in list price; adjust inventory quickly (excitement) Quantity disct: decrease for buying more » May be price cuts or additional goods (movie rentals; freq. Flier) Cumulative: » For buying over time (Subway; buy ten, one free) » Loyalty Non-cumulative: » For one purchase » Decrease storage

Pricing Objectives (5) • Allowances and Discounts (cont…) • • ad allowance: price reduction for downstream ads stocking allowance – pay for retail space (Wal-Mart) – mainly for new (justify: costs)

Pricing Objectives (6) • Allowances and Discounts (cont…) – Push money/spiffs/p. m. – Retailer incentives for aggressive selling (target: sales force) – Question: incentives – Trade-in: price reduction for old items – Seasonal: buy @ unpopular times (storage; heating oil)

Payment Terms • • • Net: full amount Cash Discount: reduction to pay early 2/10, net 30: – 2% discount if paid w/in 10 days; – full payment due in 30 (BIG take anyway)

Summary • • Objectives: sales – status quo - profit Allowances & discounts Administered vs. flexible Read: – Robinson-Patman Act (pg. 509 -510) – Skimming/Penetration Pricing (pg. 493 -495)