Setting the Right Price

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Setting the Right Price

• Key Concepts

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How to Set a Price on aProduct or Service
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Establish Pricing Goals
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Choose a Price Strategy
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Why When Price Skimming ?
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Penetration Pricing

• Discourages or blocks competition from market
  entry PRICE AS BARRIER
• Boosts sales and provides large profit increases
• Can justify production expansion

• Requires gear up for mass production
• Have to sell large volumes at low prices
• Strategy to gain market share may fail

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Status Quo Pricing

• Simplicity
• Safest route to long-term survival for small
  firms Fly under the radar

• Strategy may ignore demand and/or cost

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Setting the Right Price
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The Legality and Ethics ofPrice Strategy
Unfair Trade Practices
Price Fixing
Price Discrimination
Predatory Pricing
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The Legality and Ethics ofPrice Strategy
Unfair TradePractices
Laws that prohibit wholesalers and retailers
from selling below cost.
Price Fixing
An agreement between two or more firms on the
price they will charge for a product.
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Price Discrimination
The Robinson-Patman Act of 1936

• There must be price discrimination.
• Transaction must occur in interstate commerce.
• Seller must discriminate by price among two or
  more purchasers.
• Products sold must be commodities or tangible
  goods.
• Products sold must be of like grade and quality.
• There must be significant competitive injury.

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Price Discrimination
The Robinson-Patman Act of 1936
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Predatory Pricing
Predatory Pricing
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Tactics for Fine-Tuning the Base Price
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Discounts, Allowances, Rebates, and Value-Based
Pricing
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Value-Based Pricing
Setting the price at a level that seems to the
customer to be a good price compared to the
prices of other options.
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Pricing Products Too Low

• Managers attempt to buy market share through
  aggressive pricing.
• Managers tend to make pricing decisions based on
  current costs, current competitor prices, and
  short-term share gains rather than on long-term
  profitability.

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Geographic Pricing
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Geographic Pricing
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Other Pricing Tactics
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Fine-Tuning the Base Price
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Product Line Pricing
Product LinePricing
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Relationships among Products
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Inflation
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Cost-Oriented Tactics
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Cost-Oriented Tactics

• Delayed-quotation
• pricing
• Escalator pricing
• Hold prices
• constant, but
• add new fees

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Cost-Oriented Tactics

• Problems with Cost-Oriented Tactics

• A high volume of sales on an item with a low
  profit margin may still make the item highly
  profitable.
• Eliminating a product may reduce economies of
  scale.
• Eliminating a product may affect the
  price-quality image of the entire line.

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Demand-Oriented Tactics
PriceShading
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Demand-Oriented Tactics
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Recession
Value-Based Pricing
Bundling or Unbundling
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Supplier Strategies during Recession
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Pricing During Inflation and Recession