BA 370 CH 15 SDSU

cost based pricing methods

determine the final price to charge by starting with the cost.

- Relevant costs (e.g., fixed, variable, overhead) and a profit are added. Then this total amount is divided by the total demand to arrive at a cost-plus price

competition based pricing methods

set their prices to reflect the way they want consumers to interpret their own prices relative to competitors' offerings

value based pricing methods

approaches to setting prices that focus on the overall value of the product offering as perceived by the consumer

- Consumers determine value by comparing the benefits they expect the product to deliver with the sacrifice they will need to make to acquire the product

improvement value

represents an estimate of how much more (or less) consumers are willing to pay for a product relative to other comparable products

Cost of Ownership Method

consumers may be willing to pay more for a particular product because, over its entire lifetime, it will eventually cost less to own than will a cheaper alternative

pricing strategy

long-term approach to setting prices broadly in an integrative effort based on the five Cs

every day low pricing

companies stress the continuity of their retail prices at a level somewhere between the regular, nonsale price and the deep-discount sale prices their competitors may offer

high / low pricing

relies on the promotion of sales, during which prices are temporarily reduced to encourage purchases

- attracts two distinct market segments: those who are not price sensitive and are willing to pay the "high" price and more price-sensitive customers who wait for the "low" sale price

reference price

the price against which buyers compare the actual selling price of the product and that facilitates their evaluation process

penetration pricing

set the initial price low for the introduction of the new product or service

- objective is to build sales, market share, and profits quickly and deter competition from entering the market

price skimming

innovators and early adopters are willing to pay a higher price to obtain the new product or service

Markdowns

the reductions retailers take on the initial selling price of the product or service

size discount

The goal of this tactic is to encourage consumers to purchase larger quantities each time they buy

- consumers are less likely to switch brands and often tend to consume more of the product

Seasonal Discounts

price reductions offered on products and services to stimulate demand during off-peak seasons

coupons

offer a discount on the price of specific items when they're purchased

- are issued by manufacturers and retailers in newspapers, on products, on the shelf, at the cash register, over the Internet, and through the mail

rebates

manufacturer issues the refund as a portion of the purchase price returned to the buyer in the form of cash

lease

consumers pay a fee to purchase the right to use a product for a specific amount of time. They never own the product, they are just renting it

price bundling

Firms bundle products or services together to encourage customers to stock up so they won't purchase competing brands, to encourage trial of a new product, or to provide an incentive to purchase a less desirable product or service to obtain a more desirable one in the same bundle

leader pricing

attempts to build store traffic by aggressively pricing and advertising a regularly purchased item, often priced at or just above the store's cost

price lining

marketers establish a price floor and a price ceiling for an entire line of similar products and then set a few other price points in between to represent distinct differences in quality

cash discount

reduces the invoice cost if the buyer pays the invoice prior to the end of the discount period

advertising allowance

offers a price reduction to channel members if they agree to feature the manufacturer's product in their advertising and promotional efforts

slotting allowance

fees paid to retailers simply to get new products into stores or to gain more or better shelf space for their products

cumulative quantity discount

uses the amount purchased over a specified time period and usually involves several transactions

- encourages resellers to maintain their current supplier because the cost to switch must include the loss of the discount

uniform delivered pricing

the shipper charges one rate, no matter where the buyer is located, which makes things very simple for both the seller and the buyer

zone pricing

sets different prices depending on a geographical division of the delivery areas

loss leader pricing

lowers the price below the store's cost

bait and switch

the store lures customers in with a very low price on an item, only to aggressively pressure these customers into purchasing a higher-priced model by disparaging the low-priced item, comparing it unfavorably with the higher-priced model, or professing an inadequate supply of the lower-priced item

predatory pricing

firm sets a very low price for one or more of its products with the intent to drive its competition out of business

price discrimination

When firms sell the same product to different resellers at different prices

price fixing

the practice of colluding with other firms to control prices

horizontal price fixing

occurs when competitors who produce and sell competing products or services collude, or work together, to control prices, effectively taking price out of the decision process for consumers

vertical price fixing

occurs when parties at different levels of the same marketing channel agree to control the prices passed on to consumers

gray market

employs irregular but not necessarily illegal methods; generally, it legally circumvents authorized channels of distribution to sell goods at prices lower than those intended by the manufacturer