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Chapter14 - CHAPTER 14 Step 4 Select and Approximate Price...

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CHAPTER 14 Step 4: Select and Approximate Price Level -Demand-Oriented Pricing Approaches (weigh factors underlying expected customer tastes and preferences) Skimming Pricing : setting the highest initial price that customers really desiring the product are willing to pay o As the demand of these customers is satisfied, the firm lowers the price to attract another, more price-sensitive segment o This is effective when: (1) enough prospective customers are willing to buy the product immediately at the high initial price, (2) the high price will not attract competitors, (3) lowering the price has only a minor effect on increasing the sales volume and reducing the unit costs, (4) customers interpret the high price as signifying high quality Penetration Pricing : setting a low initial price on a new product to appeal immediately to the mass market o Effective when (1) many segments of the market are price sensitive, (2) a low initial price discourages competitors from entering the market, (3) unit production and marketing costs fall dramatically as production volume increase Prestige Pricing: setting a high price so that quality- or status-conscious consumers will be attracted to the product and buy it Price Lining: When a firm that is selling not just a single product but a line of products may price them at a number of different specific pricing point Odd-even Pricing : setting prices a few dollars or cents under an even number Target Pricing : the manufacturer deliberately adjusting the composition and features of a product to achieve the target price to consumers Bundle Pricing : the manufacturing of two or more products in a single package price Yield Management Pricing : the charging of different prices to maximize revenue for a set amount of capacity at any given time (ex: hotels, airlines) -Cost-Oriented Pricing Approaches (a price setter stresses the cost side of the pricing problem) Standard markup pricing : adding a fixed percentage to the cost of all items in a specific product class Cost-plus pricing : involves summing the total unit cost of providing a product or service and adding a specific amount to the cost to arrive at a price o With cost-plus percentage-of-cost pricing , a fixed percentage is added to the total unit cost
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o Cost-plus fixed-fee pricing is 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 Experience curve pricing : based on the learning effect, which holds that the unit cost of many products and services declines by 10% to 30% each time a firm’s experience at producing and selling them doubles -Profit-Oriented Pricing Approaches (balances both revenues and costs to set price) Target profit pricing : an annual target of a specific dollar volume of profit Target return-on-sales pricing : used to set typical prices that will give them a profit that is a specified percentage of the sales volume Target Return-on-Investment Pricing
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