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How to Set a Price on a Product or Service
- Establish pricing goals\
- Estimate demand, costs, and profits
- Choose a price strategy
- Fine tune with pricing tactics
- Results lead to the right price
A basic, long-term pricing framework, which establishes the initial price for a product and the intended direction for price movements over the product life cycle.
A firm charges a high introductory price, often coupled with heavy promotion.
A firm charges a relatively low price for a product initially as a way to reach the mass market.
Status Quo Pricing
Charging a price identical to or very close to the competition’s price.
Situations When Price Skimming Is Successful
- Inelastic Demand
- Unique Advantages/Superior
- Legal Protection of Product
- Technological Breakthrough
- Blocked Entry to Competitors
Unfair Trade Practices
Laws that prohibit wholesalers and retailers from selling below cost.
An agreement between two or more firms on the price they will charge for a product.
The practice of charging a very low price for a product with the intent of driving competitors out of business or out of a market.
Setting the price at a level that seems to the customer to be a good price compared to the prices of other options.
FOB Origin Pricing
The buyer absorbs the freight costs from the shipping point (“free on board”).
Uniform Delivered Pricing
The seller pays the freight charges and bills the purchaser an identical, flat freight charge.
The U.S. is divided into zones, and a flat freight rate is charged to customers in a given zone.
Freight Absorption Pricing
The seller pays for all or part of the freight charges and does not pass them on to the buyer.
The seller designates a location as a basing point and charges all buyers the freight costs from that point.
Product Line Pricing
Setting prices for an entire line of products.
Costs that are shared in the manufacturing and marketing of several products in a product line.
Tacitics to use duringHigh Inflation
- Cost-Oriented Tactics
- Demad-Oriented Tactics
The use of discounts by salespeople to increase demand for one or more products in a line.
List some Strategies to Make Demand More Inelastic
- Cultivate selected demand
- Create unique offerings
- Change the package design
- Heighten buyer dependence
List Supplier Strategies during Recession
- Renegotiating contracts
- Offering help
- Keeping the pressure on
- Paring down suppliers
the general price level at which the company expects to sell the good or service
a price reduction offered to buyers buying in multiple units or above a specified dollar amount
cumulative quantity discount
a deduction form list price that applies to the buyers total purchases made during a specific period
noncumulative quantity discount
a deduction from list price that applies to a single order rather than to the total volume of orders placed during a certain period
a price reduction offered to a consumer, an industrial user, or a marketing intermediary in return for prompt payment of a bill
functional discount (trade discount)
a discount to wholesalers and retailers for performing channel functions
a price reduction for buying merchandise out of season
promotional allowance (trade allowance)
a payment to a dealer for promoting the manufacture's product
a cash refund given for the purchase of a product during a specific period
a price tactic that offers all goods and services at the same price (or perhaps two or three prices)
flexible pricing (variable pricing)
a price tactic in which different customers pay differnt prices for essentially thes ame merchandise bought in equal quantities
the pratice of offering a product line with several items at specific price points
leader pricing (loss-leader pricing)
a price tactic in which a product is sold near or even below cost in the hope that shoppers will buy other items once they are in the store
a price tactic that tries to get consumers into a store through false or misleading price advertising and then uses high-pressure selling to persuade consumers to buy more expensive merchandise
odd-even pricing (psychological pricing)
a price tactic that uses odd-numbered prices to connote bargins and even-numbered numbers to imply quality
marketing two or more products in a single package for a special price
reducing the bundle of services that comes with the basic product
a price tactic that charges two separate amounts to consume a single good or service
an extra fee paid by the consumer for violating the terms of the purchase agreement
delayed quotation pricing
a price tactic used for industrial installations and many accessory items in which a firm price is not set until the item is either finished or delivered
a price tactic in which the final selling price reflects cost increases incured between the time the order is placed and the tiem delivery is made