Pricing Strategies

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Pricing Strategies

• the price is what you pay, the value is what you
  receiveanonymous

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3 Potent Forces

• Image (premium or least price)
• Competition (nonprice)
• Value (objective or perceived)

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Rising Costs

• Communicate with customers
• Improve efficiency in the company
• Absorb the cost increases
• Emphasize the value of the product
• Anticipate rising costs/lock in prices early

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Pricing Factors

• Product/service costs
• Market factors
• Sales volume
• Competitors prices
• Competitive advantage
• sensitivity
• Desired image

• Economic conditions
• Business location
• Seasonal fluctuations
• Psychological factors
• Credit terms/purchase discounts
• Customers price

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Customized or Dynamic Pricing

• A pricing technique that sets different prices on
  the same products and services for different
  customers using the information that a company
  collects about its customers

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Pricing Strategies and Tactics

• Introducing a New Product
• Getting the Product Accepted
  -revolutionary
  -evolutionary
  -me-too
• Maintaining the Market Share
• Earning a Profit

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Pricing Strategies and Tactics

• Introducing a New Product
• Market Penetration
• Skimming
• Sliding down the Demand Curve

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Pricing Strategies and Tactics

• Pricing Established Goods and Services
• Odd Pricing sets prices that end in odd numbers
  to create the psychological impression of low
  prices
• Price Lining greatly simplifies the pricing
  function by pricing different products at
  different price points, depending on quality,
  features, and cost
• Leader Pricing involves marking down the normal
  price of a popular item in an attempt to attract
  more customers who make incidental purchases of
  other items at regular prices

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Strategies and Tactics (contd)

• Geographic Pricing
• 
  zone involves
  setting different prices for different
  territories because of different transportation
  costs
• 
  delivered charges
  all of its customers the same price regardless of
  location
• 
  FOB-Factory
  sells merchandise to customers who then also pay
  for the shipping costs

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Strategies and Tactics (contd)

• Opportunistic Pricing involves charging
  customers unreasonably high prices when goods or
  services are in short supply
• Discounts reductions from normal list prices,
  ex. Multiple-unit pricing offering customers
  discounts if they purchase in quantity
• Bundling involves grouping together several
  products into a package that offers extra value
  at a special price, ex. optional, captive,
  byproduct
• Suggested Retail Price manufacturer suggestion

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Pricing Strategies for Retailers

• Markup difference between cost of a product and
  its selling price
• Dollar MarkupRetail Price Cost
• Retail MarkupDollar Markup/Retail Price
• Cost MarkupDollar Markup/Cost
• MarkupOperating ExpensesReductionsProfits
• Net Sales Reductions
• Follow-the-Leader
• Below-Market Pricing

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Pricing Strategies for Retailers (contd)

• Sale Rack Shuffle
• clothing company makes a dress for 50
• Sells dress to retailer at 80
• Retailer marks dress up to 200
• If unsold after 8-12 weeks, marks down by 25 to
  150
• If still unsold, marks down further until it
  does. Clothing company and retailer agree how to
  share the cost of markdown.

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Pricing Strategies for Manufacturers

• Direct Costing
  absorption costing traditional method in which
  all manufacturing and overhead costs are absorbed
  into total cost
  variable costing includes in the products
  cost only those that vary directly with the
  quantity produced.

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Pricing Strategies for Manufacturers (contd)

• Full Absorption Income Statement
• Sales
  790,000
• Cost of Goods
• Materials 250,500
• Direct Labor 190,200
• Factory Overhead 120,200
  560,900
• Gross Profit
  229,100
• Operating Expenses
• General and Administrative 66,100
• Selling
  112,000
• Other
  11,000 189,100
• Net Income
  40,000

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Pricing Strategies for Manufacturers (contd)

• Direct Cost Income Statement
• Sales Revenue
  790,000
• Variable Costs
• Materials 250,500
• Direct Labor 190,200
• Variable factory overhead 13,200
  502,000
• Contribution Margin (36.5)
  288,000
• Fixed Costs
• Factory Overhead 107,000
• Fixed selling expenses 63,900
• General and Administrative 66,100
• Others 11,000
  248,000
• Net Income
  40,000

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Pricing for Manufacturers (contd)

• Computing the Break-Even
• Selling Price
• Selling Price
• Profit (Variable Cost/U x Qty Produced) Total
  Fixed Cost
• Qty Produced

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Pricing Strategies for Service Firms

• Hourly Rate with Profit
• With Materials
• Without Materials

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Impact of Credit on Pricing

• Credit Cards
• Installment Credit
• Trade Credit