How strong are current competitors and what are their current pricing strategies? LO2: Identify and define the other important external and internal factors affecting a firm’s pricing decisions Internal factors include: o Company’s overall marketing strategy, objectives and marketing mix Pricing strategy largely determined by decisions on brand positioning Target costing: starts with an ideal selling price and targets costs that will ensure the price is met External factors include: o The nature of the market and the demand and other environmental factors Pure competition Monopolistic competition Oligopolistic competition Pure monopoly LO3: Describe the major strategies for pricing new products Market-skimming pricing: set initial high prices to skim revenues from the market o Product’s quality and image must support the higher price o Cost of producing a smaller volume cannot cancel benefit of charging more
Market-penetration pricing: set a low initial price in order to penetrate the market quickly and deeply LO4: Explain how companies find a set of prices that maximizes the profits from the total product mix Product line pricing o Management must decide on the price steps to set between the various products in a line Optional-product pricing o Main product is sold at a low margin or near cost price, and marketers focus on promoting the extras and upgrades Captive-product pricing o Producers of the main products often price them low and set high mark-ups on the supplies o Two-part pricing: fixed fee plus a variable usage rate By-product pricing o Company seeks a market for these by-products to help offset the costs of disposing of them and to help make the price of the main product more competitive Product bundle pricing o Sellers often combine several of their products and offer the bundle at a reduced price LO5: Discuss how companies adjust their prices to take into account different types of customers and situations Discount and allowance pricing Segmented pricing o Customer-segmented pricing o Product-form pricing o Location-based pricing o Time-based pricing Psychological pricing Promotional pricing o Companies will temporarily price their products below list price and sometimes even below cost to create buying excitement and urgency Geographical pricing o FOB-origin pricing: customer pays freight costs o Uniform-delivered pricing: company charges the same price plus freight to all customers Dynamic pricing o Adjusting prices continually to meet the characteristics and needs of individual customers and situations International pricing o Depends on economic conditions, competitive situations, laws and regulations, and development of the wholesaling and retailing system LO6: Discuss the key issues related to initiating and responding to price changes
Initiating price changes o Price cuts Excess capacity, falling demand, dominate the market o Price increases Cost inflation Responding to price changes o
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