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How to Set a Price on a Product or Service
- Establish pricing goals\
- Estimate demand, costs, and profits
- Choose a price strategy
- Fine tune with pricing tactics
- Results lead to the right price
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Price Strategy
A basic, long-term pricing framework, which establishes the initial price for a product and the intended direction for price movements over the product life cycle.
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Price Skimming
A firm charges a high introductory price, often coupled with heavy promotion.
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Penetration Pricing
A firm charges a relatively low price for a product initially as a way to reach the mass market.
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Status Quo Pricing
Charging a price identical to or very close to the competition’s price.
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Situations When Price Skimming Is Successful
- Inelastic Demand
- Unique Advantages/Superior
- Legal Protection of Product
- Technological Breakthrough
- Blocked Entry to Competitors
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Unfair Trade Practices
Laws that prohibit wholesalers and retailers from selling below cost.
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Price Fixing
An agreement between two or more firms on the price they will charge for a product.
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Predatory Pricing
The practice of charging a very low price for a product with the intent of driving competitors out of business or out of a market.
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Value-Based Pricing
Setting the price at a level that seems to the customer to be a good price compared to the prices of other options.
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FOB Origin Pricing
The buyer absorbs the freight costs from the shipping point (“free on board”).
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Uniform Delivered Pricing
The seller pays the freight charges and bills the purchaser an identical, flat freight charge.
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Zone Pricing
The U.S. is divided into zones, and a flat freight rate is charged to customers in a given zone.
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Freight Absorption Pricing
The seller pays for all or part of the freight charges and does not pass them on to the buyer.
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Basing-Point Pricing
The seller designates a location as a basing point and charges all buyers the freight costs from that point.
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Product Line Pricing
Setting prices for an entire line of products.
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Joint Costs
Costs that are shared in the manufacturing and marketing of several products in a product line.
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Tacitics to use duringHigh Inflation
- Cost-Oriented Tactics
- Demad-Oriented Tactics
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Price Shading
The use of discounts by salespeople to increase demand for one or more products in a line.
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List some Strategies to Make Demand More Inelastic
- Cultivate selected demand
- Create unique offerings
- Change the package design
- Heighten buyer dependence
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List Supplier Strategies during Recession
- Renegotiating contracts
- Offering help
- Keeping the pressure on
- Paring down suppliers
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Base Price
the general price level at which the company expects to sell the good or service
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quantity discount
a price reduction offered to buyers buying in multiple units or above a specified dollar amount
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cumulative quantity discount
a deduction form list price that applies to the buyers total purchases made during a specific period
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noncumulative quantity discount
a deduction from list price that applies to a single order rather than to the total volume of orders placed during a certain period
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cash discount
a price reduction offered to a consumer, an industrial user, or a marketing intermediary in return for prompt payment of a bill
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functional discount (trade discount)
a discount to wholesalers and retailers for performing channel functions
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seasonal discount
a price reduction for buying merchandise out of season
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promotional allowance (trade allowance)
a payment to a dealer for promoting the manufacture's product
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rebate
a cash refund given for the purchase of a product during a specific period
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single-price tactic
a price tactic that offers all goods and services at the same price (or perhaps two or three prices)
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flexible pricing (variable pricing)
a price tactic in which different customers pay differnt prices for essentially thes ame merchandise bought in equal quantities
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price lining
the pratice of offering a product line with several items at specific price points
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leader pricing (loss-leader pricing)
a price tactic in which a product is sold near or even below cost in the hope that shoppers will buy other items once they are in the store
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bait pricing
a price tactic that tries to get consumers into a store through false or misleading price advertising and then uses high-pressure selling to persuade consumers to buy more expensive merchandise
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odd-even pricing (psychological pricing)
a price tactic that uses odd-numbered prices to connote bargins and even-numbered numbers to imply quality
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price bundling
marketing two or more products in a single package for a special price
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unbundling
reducing the bundle of services that comes with the basic product
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two-part pricing
a price tactic that charges two separate amounts to consume a single good or service
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consumer penalty
an extra fee paid by the consumer for violating the terms of the purchase agreement
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delayed quotation pricing
a price tactic used for industrial installations and many accessory items in which a firm price is not set until the item is either finished or delivered
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escalator pricing
a price tactic in which the final selling price reflects cost increases incured between the time the order is placed and the tiem delivery is made
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