mktg ch 20

Professional pricing

Fees set by people with great skill or experience in a particular field - Some doctors' and lawyers' fees are prime examples, such as $75 for an office visit, $2,000 for an appendectomy, and $995 for a divorce.

pricing objectives

Goals that describe what a firm wants to achieve through pricing

stages for establishing prices

1. Development of pricing objectives 2. Assessment of target market's evaluation of price 3. Evaluation of competitors' prices 4. Selection of a basis for pricing 5. Selection of a pricing strategy 6. Determination of a specific price

cost-based pricing

Adding a dollar amount or percentage to the cost of the product - which means marketers calculate and apply a desired level of profit to the cost of the product and apply it uniformly.

cost-plus pricing

Adding a specified dollar amount or percentage to the seller's cost

markup pricing

Adding to the cost of the product a predetermined percentage of that cost - For instance, most retailers mark up prices by 25 to 50 percent, whereas warehouse clubs, like Costco and Sam's Club, have a lower average markup of around 14 percent.

Special-event pricing

Advertised sales or price cutting linked to a holiday, a season, or an event

Differential pricing

Charging different prices to different buyers for the same quality and quantity of product - For example, many movie theaters offer discounted tickets for seniors, and airlines often charge business passengers more because they book at the last minute.

Price skimming

Charging the highest possible price that buyers who most desire the product will pay

Odd-even pricing

Ending the price with certain numbers to influence buyers' perceptions of the price or product - Odd pricing is the strategy of setting prices using odd numbers that are slightly below whole-dollar amounts. Nine and five are the most popular ending figures for odd-number prices. This strategy assumes more of a product will be sold at $99.95 than at $100.

Negotiated pricing

Establishing a final price through bargaining between seller and customer - Consumers commonly negotiate prices for houses, cars, and used equipment.

Product-line pricing

Establishing and adjusting prices of multiple products within a product line

Bundle pricing

Packaging together two or more complementary products and selling them at a single price - Bundle pricing is common for banking and travel services, computers, and automobiles with option packages. Bundle pricing is also common among products that are used in tandem. Comcast Xfinity, for instance, offers a special rate when consumers bundle television, Internet, and phone service.

multiple-unit pricing

Packaging together two or more identical products and selling them at a single price - such as two cans for 99 cents, rather than 50 cents per can.

Reference pricing

Pricing a product at a moderate level and displaying it next to a more expensive model or brand -Reference pricing is based on the "isolation effect," meaning an alternative is less attractive when viewed by itself than when compared with other alternatives.

bait pricing

Pricing an item in a product line low with the intention of selling a higher-priced item in the line - Producers of smartphones and tablets may engage in bait pricing, selling ultra-low-priced models that lure in customers but charging extra for the most desirable features.

demand-based pricing

Pricing based on the level of demand for the product

competition-based pricing

Pricing influenced primarily by competitors' prices - A firm that uses competition-based pricing may choose to set their prices below competitors' or at the same level. Competitors believe that Amazon's competition-based pricing model has been an attempt to gain monopoly control of many retail markets.

customary pricing

Pricing on the basis of tradition - An example would be the 25-cent gumballs sold in gumball machines—the price has remained at that level for probably as long as you can remember.

everyday low prices (EDLP)

Pricing products low on a consistent basis - EDLPs are employed by retailers, such as Walmart, and by manufacturers, such as Procter & Gamble. A company that uses EDLP benefits from reduced promotional costs, reduced losses from frequent markdowns, and more stable sales.

Psychological pricing

Pricing that attempts to influence a customer's perception of price to make a product's price more attractive

captive pricing

Pricing the basic product in a product line low, while pricing related items higher - A common example of captive pricing is printer ink. - The printer is priced quite low to attract sales, but the printer ink replacement cartridges are very expensive.

Premium pricing

Pricing the highest-quality or most versatile products higher than other models in the product line

price leaders

Products priced near or even below cost - This type of pricing is used most often in supermarkets and restaurants to attract customers by offering them especially low prices on a few items, with the expectation that they will purchase other items as well.

Price lining

Setting a limited number of prices for selected groups or lines of merchandise - For instance, a shop may sell men's ties only at $22 and $37. This strategy is common in clothing and accessory stores. It eliminates minor price differences from the buying decision—both for customers and for managers who buy merchandise to sell in these stores.

Comparison discounting

Setting a price at a specific level and comparing it with a higher price

Secondary-market pricing

Setting one price for the primary target market and a different price for another market - Examples of secondary markets include a geographically-isolated domestic market, a market in a foreign country, and a segment willing to purchase a product during off-peak times (such as "early-bird" diners at restaurants and off-peak hour cell phone users)

prestige pricing

Setting prices at an artificially high level to convey prestige or a quality image - Maserati is a brand that has successfully used prestige pricing to set prices extremely high to convey an aura of ultra-luxury.

penetration pricing

Setting prices below those of competing brands to penetrate a market and gain a significant market share quickly

Periodic discounting

Temporary reduction of prices on a patterned or systematic basis - As a result, many retailers have annual holiday sales, and some apparel stores have regular seasonal sales.

random discounting

Temporary reduction of prices on an unsystematic basis

pricing strategy

a course of action designed to achieve pricing objectives, which are set to help marketers solve the practical problems of setting prices.

yield management

a strategy of maximizing revenues by making numerous price changes in response to demand, competitors' prices, or environmental conditions. For example, Greyhound, like many firms in the transportation and travel industries, invested in new information technology systems that let it set prices based on real-time analysis and gives customers a better online experience

Tensile pricing

involves making a broad statement about price reductions, as opposed to detailing specific price discounts. Examples of tensile pricing would be statements like "20 to 50 percent off," "up to 75 percent off," and "save 10 percent or more."

Assume a retailer purchases a can of tuna at 45 cents and adds 15 cents to the cost, making the price 60 cents. There are two ways to look at the markup, as a percentage of cost or as a percentage of selling price:

markup as percentage of cost = markup/cost markup as percentage of selling price = markup/selling price