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Price decisions

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Price decisions

  1. 1. Part 7: Pricing Decisions <ul><li>Price Concepts and Approaches </li></ul><ul><li>Pricing Strategies </li></ul>
  2. 2. Chapter 19 Pricing Strategies
  3. 3. Chapter Objectives <ul><li>Compare the alternative pricing strategies and explain when each strategy is most appropriate. </li></ul><ul><li>Describe how prices are quoted. </li></ul><ul><li>Identify the various pricing policy decisions that marketers must make. </li></ul><ul><li>Relate price to consumer perceptions of quality. </li></ul><ul><li>Contrast competitive bidding and negotiated prices. </li></ul><ul><li>Explain the importance of transfer pricing. </li></ul><ul><li>Compare the three alternative global pricing strategies. </li></ul><ul><li>Relate the concepts of cannibalization, bundle pricing, and bots to online pricing strategies. </li></ul>19-
  4. 4. Pricing Strategies <ul><li>Skimming pricing strategy : involves the use of a high price relative to competitive offerings </li></ul><ul><ul><li>Often used by marketers of high-end products </li></ul></ul><ul><ul><li>Also by firms introducing a distinctive good with little or no competition </li></ul></ul><ul><ul><li>Allows firms to control demand during the introductory stages of a products life cycle </li></ul></ul><ul><ul><li>Can be used as a tool for segmenting a product’s market on a price basis </li></ul></ul>19-
  5. 5. <ul><li>Figure 19.3 </li></ul><ul><ul><li>Price Reductions to Increase Market Share </li></ul></ul>19-
  6. 6. <ul><li>Penetration pricing strategy : involves the use of a relatively low entry price as compared with competitive offerings; based on the theory that this initial low price will help secure market acceptance </li></ul><ul><li>Everyday low pricing (EDLP): Pricing strategy of continuously offering low prices rather than relying on such short term price cuts as cents-off coupons, rebates, and special sales </li></ul>19-
  7. 7. <ul><li>Competitive Pricing Strategy : reduces emphasis on price as a competitive variable by pricing goods at the general level of competitors </li></ul><ul><ul><li>Firms focus their own marketing efforts on the product, distribution and promotion elements of the marketing mix </li></ul></ul>19-
  8. 8. Price Quotations <ul><li>List prices : Established prices normally quoted to potential buyers </li></ul><ul><li>Market price : Price that an intermediary or final consumer pays for a product after subtracting any discounts, rebates, or allowances from the list price </li></ul>19-
  9. 9. <ul><li>Reductions from List Price </li></ul><ul><ul><li>Cash discount : price reduction offered to a consumer, industrial user, or marketing intermediary in return for prompt payment of a bill </li></ul></ul><ul><ul><ul><li>2/10 net 30 , a common cash discount notation, allows consumers to subtract 2 percent from the amount due if payment is made within 10 days </li></ul></ul></ul>19-
  10. 10. <ul><li>Trade Discounts : payment to a channel member or buyer for performing marketing functions; also known as a functional discount </li></ul>19-
  11. 11. <ul><li>Quantity discount : price reduction granted for a large-volume purchase </li></ul><ul><ul><li>Justified on the grounds that large orders reduce selling expenses, storage, and transportation costs </li></ul></ul><ul><ul><li>Cumulative quantity discounts reduce prices in amounts determined by purchases over stated time periods </li></ul></ul><ul><ul><li>Non-cumulative quantity discounts provide one-time reductions in the list price </li></ul></ul>19-
  12. 12. <ul><li>Allowances </li></ul><ul><ul><li>Trade-in : credit allowance given for a used item when a new item is purchased </li></ul></ul><ul><ul><li>Promotional allowance : advertising or promotional funds provided by a manufacturer to other channel members in an attempt to integrate the promotional strategy within the channel </li></ul></ul><ul><li>Rebates : refund for a portion of the purchase price, usually granted by the product’s manufacturer </li></ul>19-
  13. 13. <ul><li>Geographic Considerations </li></ul><ul><ul><li>FOB (free on board) plant or FOB origin : Price quotation that does not include shipping charges. Buyer pays all freight charges to transport the product from the manufacturer </li></ul></ul><ul><ul><li>Freight absorption : system for handling transportation costs under which the buyer may deduct shipping expenses from the costs of goods </li></ul></ul>19-
  14. 14. <ul><ul><li>Uniform-delivered price : system for handling transportation costs under which all buyers are quoted with the same price, including transportation expenses </li></ul></ul><ul><ul><li>Zone pricing : system for handling transportation costs under which the market is divided into geographic regions and a different price is set in each region </li></ul></ul><ul><ul><li>Basing-point system : system for handling transportation costs in which the buyer’s costs included the factory price plus freight charges from the basing-point city nearest the buyer. Seeks to equalize competition between distant marketers. </li></ul></ul>19-
  15. 15. Pricing Policies <ul><li>Pricing policy : general guidelines based on pricing objectives and intended for use in specific pricing decisions </li></ul><ul><li>Psychological pricing : pricing policy based on the belief that certain prices or price ranges make a good or service more appealing than others to buyers </li></ul>19-
  16. 16. <ul><li>Odd pricing : pricing policy based on the belief that a price ending with and odd number just below a round number is more appealing </li></ul><ul><li>Unit pricing : pricing policy in which prices are stated in terms of a recognized unit of measurement or a standard numerical count </li></ul><ul><li>Price Flexibility : pricing policy that permits variable prices for goods and services </li></ul><ul><li>Product-line pricing : practice of marketing different lines of merchandise at a limited number of prices </li></ul>19-
  17. 17. <ul><li>Promotional pricing : pricing policy in which a lower than normal price is used as a temporary ingredient in the marketing strategy </li></ul><ul><ul><li>Loss leader : product offered to consumers at less than cost to attract them to stores in the hope that they will buy other merchandise at regular prices </li></ul></ul><ul><ul><ul><li>Leader pricing </li></ul></ul></ul>19-
  18. 18. <ul><li>Price-Quality Relationships </li></ul><ul><ul><li>Without other cues, price serves as an important indicator of a product’s quality to buyers </li></ul></ul><ul><ul><li>Customers often view price as an indicator of a product’s overall quality and may be willing to pay a higher price </li></ul></ul>19-
  19. 19. Competitive Bidding and Negotiated Prices <ul><li>Many purchases are made through competitive bidding, a process in which potential suppliers and manufacturers are invited to quote prices on proposed purchases or contracts </li></ul><ul><li>Negotiated Prices Online </li></ul><ul><ul><li>Buyers and sellers can communicate and negotiate prices online </li></ul></ul>19-
  20. 20. The Transfer Price Dilemma <ul><li>Transfer price : cost assessed when a product is moved from one profit center to another </li></ul><ul><li>Profit center : any part of an organization to which revenue and controllable costs can be assigned </li></ul>19-
  21. 21. Global Considerations and Online Pricing <ul><li>International markets are subject to external influences such as regulatory limitations, trade restrictions, competitor’s actions, economic events, and the global status of the industry </li></ul><ul><li>The effect the exchange rate can have on international trade can be significant. It is important that pricing of products take exchange rates into account. </li></ul>19-
  22. 22. <ul><li>Traditional Global Pricing Strategies </li></ul><ul><ul><li>Standard Worldwide : Pricing strategy in which exporters set standard worldwide prices for products, regardless of their target markets </li></ul></ul><ul><ul><li>Dual Pricing : Pricing strategy that distinguishes between domestic and export sales, and maintains a distinct set of prices for each </li></ul></ul><ul><ul><li>Market Differentiated : Flexible pricing strategy that sets prices according to local marketplace and economic conditions </li></ul></ul>19-
  23. 23. <ul><li>Characteristics Of Online Pricing </li></ul><ul><ul><li>Cannibalization : Loss of sales of an existing product due to competition from a new product in the same line </li></ul></ul><ul><ul><li>Shopping Bots : Search engines which act as comparison shopping agents </li></ul></ul><ul><li>Bundle pricing : Offering two or more complementary products and selling them for a single price </li></ul>19-