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Business Administration
BUS 343
Todd Green

BUS 343 November 15, 2010 Lecture 10 Pricing Strategy Chapter 9 Prices  Price: The value that customers give up, or exchange to obtain a desired product (295)  Bartering: The practice of exchanging a good or service for another good or service of like value  Operating Costs: Costs involved in using a product  Switching Costs: Costs involved in moving from one brand to another  Opportunity Cost: The value of something that is given up to obtain something else Profit  Profit Objectives: Pricing products with a focus on a target level of profit growth or a desired net profit Objectives margin See table 9.1, 297 (297)  Sales or Market Share Objective: Pricing products to maximize sales or to attain a desired level of sales or market share  Competitive Effect Objective: Pricing that is intended to have an effect on the marketing efforts of the competition  Customer Satisfaction Objective: Pricing that is intended to maximize customer satisfaction and retention  Image Enhancement Objective: Pricing intended to establish a desired image or positioning to prospective customers  Prestige Pricing: A strategy where prices are set significantly higher than competing brands Pricing  Cost-Based Pricing Strategies: Associated with target profits but do not consider nature of target market, Strategies (300) demand, competition and product life cycle nor the product’s image  Cost-Plus Pricing: Method of setting prices in which the seller totals all the unit costs for the product and then adds the desired profit per unit  Price-Floor Pricing: Method for calculating price in which to maintain full plant operating capacity, a portion of a firm’s output may be sold at a price that covers only marginal (variable) costs of production  Usually due to downturn in economy  Demand-Based Pricing Strategy: A price setting method based on estimates of demand at different prices  Demand Curve: A plot of the quantity of a product that customers will buy in a market during a period of time at various places if all other factors remain the same  Normal goods demand increase as prices drop (Straight \ line)  Prestige goods demand increase then decrease as prices rise (Curved ) line) See 302  Target Cost Pricing: A process which firms identify the quality and functionality needed to satisfy customers and what price they are willing to pay before the product is designed; the product is manufactured only if the firm can control costs to meet the required price  Yield-Management Pricing: A practice of charging different prices to different customers to manage capacity while maximizing revenues  Variable Pricing: A flexible pricing strategy that reflects what individual customers are willing to pay  Skimming Pricing: Charging a very high, premium price for a new product  Experimental Pricing: A strategy of experimenting with prices until the price that generates the highest profitability is found  Judgement: A pricing strategy that draws on past experience of the marketer in setting appropriate prices Market Share  Value Pricing (Everyday low pricing): A pricing strategy in which a firm sets prices that provide ultimate Pricing value to customers Strategies  Frequent Discounting: A strategy of frequently using sale prices to increase sales volume (306)  Penetration Pricing: A pricing strategy in which a firm introduces a new product at a very low price to encourage more customers to purchase it  This discourages competitors from entering and the pioneering brand often has dominant market share for the rest of the product life cycle  Trial Pricing: Pricing a new product low for a limited period of time to lower the risk for a customer Competitive Pricing Strategies  Price Leadership (follower): The firm that sets prices first in an industry; other major firms in the industry follow the leader by staying in line (307)  Premium Pricing: Pricing above competitors to offer quality brand image  Umbrella Pricing: A strategy of ducking under a competitor’s price by a fixed percentage  Price Bundling: Selling two or more goods or services as a single package for one price Pricing Strategy for Customer  Cost of Ownership: A pricing strategy that considers the lifetime cost of using the product Satisfaction Price Point and Tactics (309)  Pricing for Individual Products  Payment Pricing: Payments over a period of time, such as monthly payments  Two-Part Pricing: Two separate types of payments are required  Ex.: Golf clubs have monthly fees plus each round of golf  Pricing for Multiple Products  Captive Pricing: Tactic for two items that must be used together, one item is priced very low and the other is an essential item which is priced high for profits  F.O.B. Origin Pricing (Factory): A pricing tactic where the cost of transporting the product from the factory to the customer’s location is the responsibility of the customer  F.O.B. Delivered Pricing: A pricing tactic where the cost of loading and t
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