Chapter 14 Strategic Pricing

skimming pricing
setting the highest initial price that customers really desiring the product are willing to pay
penetration pricing
setting a low initial price on a new product to appeal immediately to the mass market
prestige pricing
setting a high price so that quality or status-conscious consumers will be attracted to the product and buy it
price lining
selling a line of products priced at a number of different specific pricing points
odd-even pricing
setting prices a few dollars or cents under an even number
target pricing
estimating the price that the ultimate consumer would be willing to pay for a product, then working backward through markups taken by retailers and wholesalers to determine what price they can charge wholesalers for the product
bundle pricing
the marketing of two or more products in a single package price
yield management pricing
the charging of different prices to maximize revenue for a set amount of capacity at any given time
standard markup pricing
adding a fixed percentage to the cost of all items in a specific product class
cost-plus pricing
summing the total unit cost of providing a product or service and adding a specific amount to the cost to arrive at a price
experience curve pricing
(based on the learning effect) the unit cost of many products/services declines by 10% – 30% each time a firm’s experience at producing and selling them doubles
target profit pricing
setting an annual target of a specific dollar volume of profit
? = TR – TC
target return on sales pricing
setting typical prices that will give them a profit that is a specified percentage of the sales volume
% = [TR – TC] / TR
target return on investment pricing
a method of setting prices to achieve target return on investment
customary pricing
when tradition, a standardized channel of distribution, or other competittive factors dictate the price
above, at, or below marketing pricing
when marketing managers have a subjective feel for the competitiors’ price or market price
loss leader pricing
deliberately selling a product below its customary price to attract attention to it; not to increase sales, but to attract attention in hopes that customers will buy other products as well
one price policy (fixed pricing)
setting one price for all buyers of a product/service
flexible price policy (dynamic pricing)
setting different prices for products/services depending on individual buyers and purchase situations; gives sellers considerable discretion in setting the final price in light of demand, cost, and competitive factors
product-line pricing
the setting of prices for all items in a product line
price war
successive price cutting by competitors to increase or maintain their unit sales or market share
quantity discounts
reductions in unit costs for a larger order
everday low pricing (EDLP)
the practice of replacing promotional allowances with lower manufacturer list prices; promises to reduce the average price to consumers while minimizing promotional allowances that cost manufacturers billions of dollars every year
promotional allowances
given to sellers in the marketing channel for undertaking certain advertising or selling actibities to promote a product
FOB origin pricing
title to the goods passes to the buyer at the point of loading the goods onto the vehicle; the buyer becomes responsible for picking the specific mode of transportation, for all transportation costs, and for subsequent handling of the product; means “free on board’
uniform delivered pricing
the price the seller quotes, including all transportation costs, which are quoted in a contract as “FOB buyer’s location”
basing-point pricing
selecting one or more geographical locations from which the list price for products plus freight expenses are charged to the buyer
price fixing
a conspiracy among firms to set prices for a product (illegal under the Sherman Act)
price discrimination
the practice of charging different prices to different buyers for goods of like grade and quality (prohibited by the Clayton Act as amended by the Robinson-Patman Act)
predatory pricing
charging a very low price for a product with the intent of driving competitiors out of business, then raising the prices back up (illegal under the Sherman Act and the Federal Trade Commission Act)