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14 Cards in this Set
- Front
- Back
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Price-Setting Process
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Set Pricing Objectives
Determine Demand Estimate Costs Analyze Competitors' Prices and Offering Select a Pricing Method Set Final Price |
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Pricing Objectives
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Profit Maximization
Market Share Maximization Quality Leadership Competitive Parity Survival |
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Cost-Based Pricing Techniques
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Cost-Based Approaches
Cost Plus Pricing Markup Pricing Target Pricing |
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Issues to Consider When Using Cost-Based Approaches
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What profit margin does a price level allow?
Do markups allow for differences in product investments, installation and services, selling effort and merchandising? Are there specific profit or return-on-investment goals? What is the price-floor for each product, service, project, process, and/or store? What are the break-even points for each product service, project, process, and/or store? |
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Cost Minus approach:
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This approach ; asked "what do consumers want to pay for 9-lives? Answer: $0.25 - $0.33 per can.
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Demand-Based Pricing Techniques
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Significant Information Requirements:
Accurate Demand Forecasts Elasticity of Demand Segment Requirements Ability to Buy |
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Demand Based Approaches
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Demand-Minus Pricing(Heinz)
Chain Markup Pricing Price Discrimination (yield management) |
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Competition-Based Pricing Techniques
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Used when competitors' prices are the major benchmark
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Competition-Based Approaches
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Price Leadership
Competitive Bidding |
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Issues to Consider when using Competition-Based Approaches
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Who are your competitors, really?
Is price leadership used in the industry (by whom)? How do competitors react to price changes? How are competitive bids awarded? Is the "long-term profit" concept used in competitive bidding? |
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Price Shrouding
Concept by behavioral economist Xavier Gabaix |
Refers to prices that are not quite hidden, but also not quite clear.
Example Hotel costs $99 a night but after fees, taxes, etc. the cost is $140. |
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Shrouding
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Results in an information gap between consumers and companies.
Consumers-hunt for tricks to save money Stores-set traps that enable taking money Prices tags are no longer honest, and smart consumers know it Customers seek ways to beat the stores. |
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JC Penney's New Pricing Strategy (Not so Smart)
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No more coupons, markdowns, deceptive pricing, etc.
Honest, clear prices New marketing campaign, invested a lot of dollars in the new strategy - with Ellen DeGeneres ads. Eliminating complicated promotion schemes: Which saved 220 million on advertising and promotion but lost lots of market share and customer satisfactions. No promotions caused customer traffic to fall 10% Customer didn't trust JC Penney's claim of honest prices. |
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The Perils of a Price Cut
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Full Price 3%Off
Price: $1 $0.97 Profit: 8.1% 5.1% (-37) Cost 91.9% 91.9% |
