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1 Chapter13PricingStrategies 2 Chapter13 Skip Robinson PatmanAct p 372 373 Unfair PracticesActs p 378 3 PRICEVSNONPRICECOMPETITION PriceCompetitionPriceCompetition priceaslowaspossibleandaccompaniedbyaminimumofservices competeonprice Valuepricing aimstoimproveaproduct svaluewhichistheratioofitsbenefitstoitspriceandrelatedcosts Improvevalueby 1 offersproductswithlowerpricesbutthesameoraddedbenefitsatthesametimeseekswaytoreduceexpensessoprofitsdonotsuffer 2 offersamuchbetterproductwithahigherpricethancompetingentries 4 PRICEVSNONPRICECOMPETITION NonpriceCompetition sellerswillnotcompeteonprice maintainprice butthesellerswillcompeteonproduct distribution andpromotion Basedonthiscompetition thedemandcurveisshiftedtotheright AdvantagesofNonpriceCompetition1 Increaseinsaleswithnodecreaseinsellingprice2 Companieshavemorecontrolwhereascustomersaremoreloyal Firmsemployingnonpricecompetitionshould 1 Buildstrongbrandequity2 Developuniqueproductorcreateattractivepromotionalprogramse g 50 discount3 Emphasizethevarietyandqualityoftheservicesofferedtocustomers 5 Market EntryPricingStrategies Market SkimmingPricing settinghighpriceforanewproductMarket skimmingpricingisappropriatewhen Yournewproducthasdistinctivefeaturesstronglydesiredbyconsumers Demandisinelastic Yournewproductcannotbecopiedeasily 6 AdvantagesofSkimmingPricing1 HighprofitmarginsoR Dcostsarequicklyrecovered 2 Highpricescansuggesthighproductquality 3 Highpricewilllimitdemandtolevelsthatdonotexceedthefirm sproductioncapacities 4 Greaterflexibility firmscaneasilylowerthepricelater Market EntryPricingStrategies 7 Market PenetrationPricing settingrelativelylowinitialpriceforanewproduct Market penetrationissuitablewhen Marketislarge Demandiselastic Substantialreductionsinunitcostscanbeachieved throughEOS Thereisafiercecompetitioninthemarket Market EntryPricingStrategies 8 AdvantagesofMarket PenetrationPricing1 Immediatelyenterthemarket 2 Generatelargesalesvolumeandalargemarketshare 3 Discourageotherfirmsfromintroducingcompetingproducts Market EntryPricingStrategies 9 DISCOUNTSANDALLOWANCES 1 QuantityDiscounts moneyoffwhichacustwillgetforbuyinglargeamountThereare2typesofquantitydiscounts 1 1Non cumulativediscount basedonthesizeofanindividualorderofoneormoreproducts 1 2Cumulativediscount basedonthetotalvolumepurchasedoveraspecifiedperiod 2 TradeDiscountsor functionaldiscounts arereductionswhichacust distributor willgetforperformingmarketingtasks 10 DISCOUNTSANDALLOWANCES 3 CashDiscounts moneyoffwhichacustwillgetforpayingbillswithinaspecifiedtimee g 3 10 n 45 orincash 4 OtherDiscountsandAllowances4 1Rebate discountonaproductthatacustomerobtainsbysubmittingaformorcertificateprovidedbytheseller Mail in Coupon4 2PriceCustomization establishesvariouspricesonthebasisofhowmuchdifferentpeoplevalueaproduct 4 3SeasonalDiscount discountwillbegivenwhenanorderisplacedduringtheslackseason 4 4PromotionalAllowance pricereductionforpromotionalservicesperformedbybuyers 11 GEOGRAPHICPRICINGSTRATEGIES 1 Point of ProductionPricingor FOBfactorypricing orFOBmillpricing thesellerquotesthesellingpriceatthepointofproduction andthebuyerselectsthemodeoftransportationandpaysallfreightcosts Thesellerpaysonlyforloadingtheshipmentontothefreightcarrier 2 UniformDeliveredPricingor PostageStampPricing onepricetoallbuyersregardlessoftheirlocations usedwherefreightcostsareasmallpartoftheseller stotalcost sellerpaysthefreight 12 GEOGRAPHICPRICINGSTRATEGIES 3 Zone DeliveredPricing onepriceforonezone Thefreightchargeisanaverageofthechargestoallpointswithinazone sellerpaysthefreight 13 4 Freight AbsorptionPricing factorypriceplusthefreightcoststhatwouldbechargedbyacompetitivesellerlocatednearthatcustomer tooffsetcompetitivedisadvantagesofFOBfactorypricing Thesupplierdecidestoabsorbsomefreightcostaslongasthenetrevenueislargerthanitsmarginalcosts Freightabsorptionisusefulwhenafirmhas excesscapacity highfixedcosts and lowvariablecostsperunitofproduct GEOGRAPHICPRICINGSTRATEGIES 14 SpecialPricingStrategies Situations One PriceStrategy onepricetoallsimilarbuyersFlexible PriceStrategyor Variable PriceStrategy differentpricestosimilarbuyersasbargainingisallowedFlat RatePricing apurchaserpaysafixedsinglepriceandthencanconsumeaslittleorasmuchoftheproductasdesirede g OishichargesBt500regardlessoftheamountfoods Single PriceStrategy allitemsaresoldunderthesamesinglepricee g EverythingisBt10 15 PricingLining settingsimilarpricesforproductsthoseareunderthesameproductlineOdd Pricingor psychologicalpricing settingpricesatuneven orodd amountse g Bt99 LeaderPricing temporarilycutpricesonafewitemstoattractcustomers Theitemsonwhichpricesarecutaretermedleaders iftheleaderispricedbelowthestore scost itsalossleader cost price High LowPricing rotatingbetweenregular high and sale low prices SpecialPricingStrategies Situations 16 EverydayLowPricing EDLP lowpriceeverydaye g TescoLotusResalePriceMaintenance manufacturerswanttocontrolthepricesatwhichmiddlemenreselltheirproducttoprotectthebrand simage SuggestedListPrice priceissetbyamanufactureratalevelthatprovidesretailerwiththeirnormalmarkups SpecialPricingStrategies Situations 17 ReactiveandProactivechanges Temporarypricecutsmaybenecessary1 tosellexcessinventory 2 tointroduceanewproductor3 todefendcompany smarketshare Ifacompetitorincrease
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