Chapter 14 Outline - Chapter 14 Arriving at the Final Price I Step 4 Select and Approximate Price Level A Demand Oriented Pricing Approaches Weigh

Chapter 14 Outline - Chapter 14 Arriving at the Final Price...

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Chapter 14 : Arriving at the Final Price I) Step 4: Select and Approximate Price Level A) Demand Oriented Pricing Approaches – Weigh factors underlying expected consumer tastes and preferences a) Skimming Prices : Setting the highest initial price that customers really desiring the product are willing to pay; consumers are not price sensitive (weigh new product’s price and quality to substitutes); as this consumers demand is satisfied, company lowers price to attract another price-sensitive segment i) Effective when: 1) enough prospective customers willing to buy at high initial price to make it profitable; 2) high initial price will not attract competitors; 3) Lowering price has only minor effect on increasing the sales volume and reducing the unit costs; 4) customers interpret the high price as signifying high quality ii) Product is usually protected by patent; or uniqueness is valued b) Penetration Pricing : Setting a low initial price on a new product to appeal immediately to the mass market i) Effective when: 1) Many segments of the market are price sensitive; 2) A low initial prices discourages competitors from entering market; 3) Unit production and marketing costs fall dramatically as production volumes increase ii) Firm can: 1) Maintain the initial price for a time to gain profit lost from low introductory level; or 2) Lower the price further, counting on new volume to generate the necessary profit iii) May follow skimming pricing c) Prestige Pricing : Setting a high price so that quality- or status-conscious consumers will be attracted to the product and buy it d) Price Lining : A line of products may be priced at a number of different specific pricing points i) Price slacks at $50, $79, and $99 ii) All items might be purchased for same cost and then market up at different percentages to achieve these price points iii) Manufacturers design products for different price points, and retailer apply approx. the same markup percentages to achieve the 3-4 price points e) Odd-Even Pricing : Setting prices a few dollars or cents under an even number ($499.99, $11.99, $3.99) f) Target Pricing : Manufacturer deliberately adjusts the composition and features of a product to achieve the target price to consumers. Manufacturer estimates price that ultimate
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