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chapter_15.pptxStrategic Pricing Methods
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McGraw-Hill/Irwin
Copyright © 2014 by the McGraw-Hill Companies, Inc. All rights reserved.
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© 2013 by McGraw-Hill Education. This is proprietary material solely for authorized instructor use. Not authorized for sale or distribution in any manner. This document may not be copied, scanned, duplicated, forwarded, distributed, or posted on a website, in whole or part.
CHAPTER
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© 2014 by McGraw-Hill Education. This is proprietary material solely for authorized instructor use. Not authorized for sale or distribution in any manner. This document may not be copied, scanned, duplicated, forwarded, distributed, or posted on a website, in whole or part.
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Chapter 15 – Strategic Pricing Methods
Identify three methods that firms use to set their prices.
Describe the difference between an everyday low price strategy (EDLP) and a high/low strategy.
Explain the difference between a price skimming and a market penetration pricing strategy.
Identify tactics used to reduce prices to consumers.
Identify tactics used to reduce prices to businesses.
List pricing practices that have the potential to deceive customers.
Strategic Pricing Methods
LO1
LO2
LO3
LO4
LO5
LO6
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LEARNING OBJECTIVES
© 2014 by McGraw-Hill Education. This is proprietary material solely for authorized instructor use. Not authorized for sale or distribution in any manner. This document may not be copied, scanned, duplicated, forwarded, distributed, or posted on a website, in whole or part.
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These questions are the learning objectives guiding the chapter and will be explored in more detail in the following slides.
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Pricing Strategies
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Note the many factors that go into formulating a pricing strategy and discuss why some strategies choose not to take into consideration the value that consumers place on an offering.
Cost-Based
Competitor-Based
Value-Base
What are the three different strategies for setting pricing?
How can you use value-based strategies for setting prices?
CHECK YOURSELF
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Cost based, competitor based, value based
Value based include approaches to setting prices that focus on the overall value of the product offering as perceived by the consumer. Two key approaches include Improvement Value Method and Cost of Ownership Method.
Pricing Strategies
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This slide introduces the subsequent series of slides or can be used as a basis for a shortened lecture.
Everyday low pricing (EDLP)
High/Low Pricing
vs..
Everyday low pricing (EDLP)
High/low pricing
Everyday Low Pricing vs.. High/Low Pricing
Photodisc Collection/Getty Images
©Lars A Niki
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Group activity: Imagine you need an outfit for an upcoming party. You can visit TJMaxx, where you know you will find an EDLP pricing strategy. However, Nordstrom is having its semi-annual sale, during which it drastically marks down its usually high prices. Where do you think you will find a better price? Which offers better value? Why?
Create value in different ways
EDLP saves search costs of finding lowest overall prices
High/low provides the thrill of the chase for the lowest price
Odd Prices
Odd prices may be so traditional that sellers are afraid to round them off
They may suggest a good deal
They may also suggest low quality
©Jeff Greenberg/PhotoEdit
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Ask students: Do most of the prices you see end in odd numbers? Why? Come up with as many possible explanations as you can that highlight the possible benefits of this system.
Consumers’ Use of Reference Prices
Photodisc Collection/Getty Images
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Group activity: In groups, list the average prices of the following items: rent on a one-bedroom apartment, a backpack, a washing machine, a mid-size car, a house, a bicycle, and a soda. Compare the price points among groups.
Usually, students provide relatively accurate price points for products they use frequently, but their estimates likely vary significantly for the other items. Discuss how they determined these prices
External reference price
Internal reference price
Reference Pricing
How do consumers use reference pricing when shopping for clothing?
How does this ad help the consumer?
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This is an interesting ad – it does not give the original price of the products, but gives proof that the products are discounted from the regular price. This positions the clothing as higher value so that when the consumer shops for clothing and compares prices, they know they are receiving more value for their money.
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Wine ranges in price from under $5 a bottle to over $100K a bottle. How do you know which to choose?
The Price-Quality Relationship
Most inexperienced consumers use price as an indicator of quality
Price becomes crucial when consumers have little knowledge about certain products/brands
Steve Mason/Getty Images
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Wine experts know the differences between varieties, but average consumers often have trouble determining what dictates wine prices. Various magazines and organizations provide ratings of wine, which often show that the best wines are not always the most expensive.
New Product Pricing Strategies
Courtesy Ford Motor Company.
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Group activity: Develop a list of products that might use price skimming versus penetration pricing. What qualities should a product possess to use a price skimming strategy? For example, Godiva introduced its hot chocolate mix at a price point that was double that of other hot cocoa mixes. How was it able to achieve success with this product?
Penetration pricing helps firms build market share for their new products quickly, but consumers must be price elastic for this strategy to work.
Market Penetration Pricing
Price skimming
Explain the difference between EDLP and high/low pricing.
What pricing strategies should be considered when introducing a new product?
Check Yourself
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EDLP saves search costs of finding lowest overall prices, and High/low provides the thrill of the chase for the lowest price.
Price skimming and penetration pricing.
Pricing Tactics Aimed at Consumers
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This slide can be used as the basis for a shortened lecture or to introduce the subsequent slides
Mark downs
Quantity Discounts
Seasonal Discounts
Coupons
Rebates
Leasing
Price Bundling
Leader Pricing
Business Pricing Tactics and Discounts
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This slides provide the basis for a shortened lecture or introduces the more detailed discussion that follows.
Seasonal
discounts
Cash
discounts
Vendor Allowances
Quantity
discounts
Uniform delivered vs. Zone pricing
What are some consumer-oriented pricing tactics?
What are some B2B-oriented pricing tactics?
Check Yourself
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Price lining. price bundling. leader pricing
Seasonal discounts, cash discounts, allowances, quantity discounts, uniform delivered versus zone pricing
Legal Aspects and Ethics of Pricing
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A host of laws and regulations at both the federal and state levels attempt to prevent unfair pricing practices, but some are poorly enforced, and others are difficult to prove.
Legal Aspects and Ethics of Pricing
Deceptive or
illegal price
advertising
Predatory
pricing
Price
discrimination
Price
fixing
What common pricing practices are considered to be illegal or unethical?
CHECK YOURSELF
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Deceptive reference prices, loss leader pricing, bait and switch
A cumulative quantity discount uses the amount purchased over a specified time period and usually involves several transactions.
Glossary
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A cumulative quantity discount uses the amount purchased over a specified time period and usually involves several transactions.
Horizontal price fixing occurs when competitors that produce and sell competing products collude, or work together, to control prices, effectively taking price out of the decision process for consumers.
Glossary
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Horizontal price fixing occurs when competitors that produce and sell competing products collude, or work together, to control prices, effectively taking price out of the decision process for consumers.
Price skimming is a strategy that occurs in many markets, and particularly for new and innovative products or services, and involves consumers being willing to pay a higher price to obtain the new product or service.
Glossary
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Price skimming is a strategy that occurs in many markets, and particularly for new and innovative products or services, and involves consumers being willing to pay a higher price to obtain the new product or service.
A reference price is the price against which buyers compare the actual selling price of the product and that facilitates their evaluation process.
Glossary
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A reference price is the price against which buyers compare the actual selling price of the product and that facilitates their evaluation process.
With a uniform delivered pricing tactic, the shipper charges one rate, no matter where the buyer is located.
Glossary
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With a uniform delivered pricing tactic, the shipper charges one rate, no matter where the buyer is located.
Vertical price fixing occurs when parties at different levels of the same marketing channel collude to control the prices passed on to consumers.
Glossary
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© 2014 by McGraw-Hill Education. This is proprietary material solely for authorized instructor use. Not authorized for sale or distribution in any manner. This document may not be copied, scanned, duplicated, forwarded, distributed, or posted on a website, in whole or part.
Vertical price fixing occurs when parties at different levels of the same marketing channel collude to control the prices passed on to consumers.
