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Chapter 18 Setting the Right Price
Steps in Setting the Right Price
Establish pricing goals
Estimate demand, costs, and profits
Choose a price strategy
Fine tune with pricing tactics
Results lead to the right price
Price Skimming
Inelastic Demand
Situations
when
Price
Skimming
is
Successful
Superior Product
Legal Protection of Product
Technological Breakthrough
Limited Production
Penetration Pricing
Advantages
 Discourages or blocks
competition from
market entry
Disadvantages
 Requires gear up for
mass production
 Selling large volumes
at low prices
 Strategy to gain
market share may fail
Status Quo Pricing
Advantages
 Simplicity
 Safest route to longterm survival for small
firms
Disadvantages
 Strategy may ignore
demand or cost
The Legality and Ethics of
Price Strategy
Unfair Trade Practices
Price Fixing
Issues
That Limit
Pricing
Decisions
Price Discrimination
Predatory Pricing
Tactics for Fine-Tuning
the Base Price
Discounts
Fine-Tuning
Pricing
Tactics
Geographic Pricing
Special Pricing
Tactics
Tactics for Fine-Tuning
the Base Price
Quantity Discounts
Cash Discounts
Functional Discounts
Seasonal Discounts
Common
Tactics
for
Fine-Tuning
the Base Price
Promotional Allowances
Rebates
Value-Based Pricing
Special Pricing Tactics
Single-Price Tactic
All goods offered at the same price
Flexible Pricing
Professional
Services Pricing
Price Lining
Different customers pay different price
Leader Pricing
Sell product at near or below cost
Bait Pricing
Price Bundling
Lure customers through false or misleading
price advertising
Odd-number prices imply bargain
Even-number prices imply quality
Combining two or more products in a
single package
Two-Part Pricing
Two separate charges to consume a single good
Odd-Even Pricing
Used by professionals with experience,
training or certification
Several line items at specific price points
Relationships among Products
Relationships
Among Products
Complementary
Substitutes
Neutral
Cost-Oriented Tactics
Problems with
Cost-Oriented Tactics
 A high volume of sales on an item with a low
profit margin may still make the item highly
profitable
 Eliminating a product may reduce economies
of scale
 Eliminating a product may affect the pricequality image of entire line
Demand-Oriented Tactics
Cultivate selected demand
Strategies
to Make
Demand
More Inelastic
Create unique offerings
Change the package design
Heighten buyer dependence