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 (PriceLine)
(-)

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 ps
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)