Chapter 14: Arriving at the Final Price Four approaches for selecting an approximate price level: Demand oriented approaches: 1.Skimming pricing, setting the highest initial price that customers really desiring the product are willing to pay. 2.Setting a low initial price on a new product to appeal immediately to the mass market is penetration pricing.3.Prestige pricinginvolves setting a high price so that quality- or status-conscious consumers will be attracted to the product and buy it. 4.Price lining:Setting the price of a line of products at a number of different specific pricing points. The purpose is to create various quality levels in the minds of consumers.In some instances, all the items might be purchased at the same cost and then marked up at different percentages to achieve the price points. 5.Odd-even pricing:Setting prices a few dollars or cents under an even number. 6.Target pricing : Manufacturers will sometimes estimate the price that the ultimate consumer would be willing to pay for a product. They then work backward through markups taken by retailers and wholesalers to determine what price they can charge wholesalers for the product. After estimating the consumer price, the manufacturer adjusts the composition and features of the product to achieve the target price to consumers. 7.Bundle pricingthe marketing of two or more products in a single package price, based on the idea that consumers value the package more than the individual items. 8.Yield management pricingthe charging of different prices to maximize revenue for a set amount of capacity at any given time. For example, hotels in Austin cost more during the week of SXSW or during the F1 Race than at other times of the year. Cost Oriented Approaches: 1.Standard markup pricing:adding a fixed percentage to the cost of all items in a specific product class. For example, a grocery store may affix the same markup to all items in the dairy case. The markup on staple items such as sugar, flour, and dairy products varies from 10 percent to 23 percent, whereas markups on discretionary items like snack foods and candy ranges from 27 percent to 47 percent.
2.Cost-plus percentage-of-cost pricing involves adding a fixed percentage to the total unit cost…often used on one-of-a-kind or few-of-a-kind items. Used most often when it is difficult or impossible to predetermine how much something will cost before it is produced. 3.Cost-plus fixed-fee pricing, occurs when a supplier is reimbursed for all costs, regardless of what they turn out to be, but is allowed only a fixed fee as profit that is independent of the final cost of the project. 4.Experience curve pricingis based on the learning effect, which holds that the unit cost of many products and services declines by 10 percent to 30 percent each time a firm's experience at producing and selling them doubles.
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