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Chapter 20 - Day 28 & 29 - Student

Chapter 20 - Day 28 & 29 - Student - CHAPTER 20...

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CHAPTER 20 Setting the Right Price ©  BUENA VISTA IMAGES/THE IMAGE BANK/GETTY IMAGES
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LO 1 Describe the procedure for setting  the right price LO 2 Identify the legal and ethical  constraints on pricing decisions LO 3 Explain how discounts, geographic  pricing, and other special pricing  tactics can be used to fine-tune the  base price Learning Outcomes
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LO 4 Discuss product line pricing LO 5 Describe the role of pricing during  periods of inflation and recession Learning Outcomes
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Fine-tune with pricing tactics Choose a price strategy Estimate demand, costs, and profits Establish pricing goals Results lead to the right price How to Set a Price on a Product or Service Set Base Price
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Establish Pricing Goals P ro f it -O r ien ted S a les -O r ien ted S ta tu sQ u o Profit Maximization  Satisfactory Profits Target Return on Investment Market Share Sales Maximization Maintain Existing  Prices Meet Competition  Prices
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Choose a Price Strategy A basic, long-term pricing  framework that establishes  the initial price for a  product and the intended  direction for price  movements over the  product life cycle. Price Strategy
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Choose a Price Strategy Status Quo Pricing Price Skimming Penetration Pricing Charging a price identical to or very close to the competition’s price. A firm charges a high introductory price, often coupled with heavy promotion. A firm charges a relatively low price for a product initially as a way to reach the mass market.
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Price Strategy:  Price Skimming Situations When Price Skimming Is Successful Unique Advantages/Superior Legal Protection of Product Blocked Entry to Competitors Technological Breakthrough Inelastic Demand
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Price Strategy:  Penetration Pricing Advantages Disadvantages § Can lead to lower cost per  unit as production  expands § Discourages or blocks  competition from  market entry § Boosts sales and provides  large profit increases § Requires gear up for mass  production § Selling large volumes at  low prices § Strategy to gain market  share may fail
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Price Strategy:  Status Quo Pricing Advantages Disadvantages v Simplicity v Safest route to          long-term survival  for small firms v Strategy may ignore  demand and/or cost
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The Legality and Ethics of Price Strategy Unfair Trade Practices Price Fixing Price Discrimination Predatory Pricing
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Unfair Trade Practices and Price  Fixing Unfair Trade Practices Acts Laws that prohibit wholesalers  and retailers from selling  below cost.
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