Pricing Strategy and Management

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Pricing StrategyandManagement
Chapter Eleven
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Conceptual Orientation to Pricing
Price Ceiling

• Demand factors
• (Value to buyers)
• Competitive factors
• Final pricing Initial
• discretion pricing
• discretion
• Corporate objectives and
  regulatory
• constraints
• Direct variable costs

(price floor)
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Pricing Situations

• New product pricing
• Life cycle pricing
• Positioning strategy change
• Countering competitive threats

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Pricing Strategies

• Major steps in selecting a pricing strategy
• Set price objective
• Analyze the pricing situation
• Select pricing strategy
• Determine specific prices and policies

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Examples of Pricing Objectives

• Gain market position
• Achieve financial performance
• Product positioning
• Stimulate demand
• Influence competition

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ANALYZING THE PRICING SITUATION

• Customer Price Sensitivity
• Product Cost
• Competitors Likely Response
• Legal Ethical Constraints.

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Legal and Ethical Considerations

• Horizontal Price Fixing
• Sherman Antitrust Act
• Price Discrimination
• Robinson - Patman Act
• Deceptive Pricing
• Federal Trade Commission
• Price Fixing in Channels of distribution
• Consumer Goods Pricing Act
• Price Information

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How Much Flexibility Exists?
Price too high little or no demand

• Nature of demand in target market
• Business and marketing strategy
• Product differentiation
• Competitors prices
• Prices of substitutes
• Product costs

Range of feasible prices
Price too low no profit possible
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Price Positioning
Above Competition
Skim strategy Neutral strategy (same as
competition) Penetration strategy
Below Competition
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General Pricing Approaches

• Cost Oriented Approach
• Cost Plus Pricing
• Breakeven Pricing
• Target ROI
• Demand Oriented Approach
• Value Based Pricing
• Competition-Oriented Approach
• Status Quo Pricing

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COST PLUS PRICING
MARK UP ON SELL (Retail price)
Selling Price Cost 1-
Desired profit
Example Assume you want to make 40 20.00
20 33.33 1-.40 .60
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COST PLUS PRICING
MARK UP ON COST
Selling price Cost X 1 Desired Profit
as a
EXAMPLE Same assumption Selling price 20.00
x 1.40 28.00
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Development of a Break-Even Chart

• Estimate of unit variable costs
• Estimate of total dollar fixed costs
• Projected selling price for the product

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BREAK-EVEN ANALYSIS
UNITS Total Fixed Cost Unit Selling Price
Unit Variable Cost DOLLARS TFC
1- (UVC/USP)
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Demand Oriented Approach
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Competitive Oriented Pricing

• What are the advantages and disadvantages for a
  firm which is utilizing this pricing strategy?

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Special Pricing Situations

• Price Segmentation
• Distribution Channel Pricing
• Price Flexibility
• Product Life Cycle Pricing