Lecture 12 - Pricing

Question 1

What are the 6 major steps to setting the price for a new product?

Answer 1

• Set price objectives
• Determine Demand
• Estimate Costs
• Analyze Competitors Price
• Select a Pricing Method
• Set Final Price

Question 2

1. Setting Price Objectives

Answer 2

Price chosen has impact on profits, marketshare, revenue flow

• Profit oriented - % on ROI
• Sales Oriented - want to sell certain percentage of market share
• Status Quo

Question 3

2. Determine Demand

Answer 3

Price elasticity
-Inelastic - Customers not sensitive to price change - need product
Elastic - people very sensitive to price change - change in price and Demand changes big - Substitiutes, luxury goods

Question 4

3. Estimate Costs

Answer 4

what is cost per unit if we sell 100,1000, 10,000?

-Economies of scale

Question 5

4. Analyze competitors prices

Answer 5

Considerations when pricing higher or lower than competitor

• avoid price wars
• Reaction from Competitors

Question 6

5. Select a pricing method

Answer 6

• Cost-plus - Cost plus a percentage to make
• B/E + Target profit pricing
• Percieved value - What will market bear?
• Going Rate pricing - competition as basis
• Sealed bid pricing - Bid on tenders

Question 7

6. Set final price

Answer 7

Previous steps narrow price range

• Psychological - too high or low for consumer?
• Company pricing policies
• Impact price has on other parties

Question 8

Modify the Price: Geographic Pricing

Answer 8

Zone, freight, FOB Pricing

Question 9

Modify the price: Price discounts and Allowances

Answer 9

Cash used = get discount - debit charges saved
Discount if buy so many
Trade in discount
Seasonal discount

Question 10

Modify the Price: Promotional pricing

Answer 10

Lost leader - selling at a loss to get customers in the door

• Special event pricing
• Cash rebates

Question 11

Modify the price: Discriminating price

Answer 11

Certain groups get certain prices
Student pricing
-Seniour pricing

Question 12

Skimming and Penetration pricing

Answer 12

Skimming - Higher profit price at beginning

Penetration pricing - Price low to get higher market share

Question 13

Ethical issues with pricing: Bait and switch

Answer 13

Bait people in with deal and try to upsell

Question 14

Ethical issues with pricing: Prices for life-saving products

Answer 14

Price life saving products with exhorbitant pricing - epipen

Question 15

Ethical issues in pricing: Price collusion

Answer 15

Competing companies get together to set a price