McGraw-Hill/Irwin Copyright © 2009 by The McGraw-Hill Companies, Inc. All rights reserved. Part Two.

McGraw-Hill/Irwin Copyright © 2009 by The McGraw-Hill Companies, Inc. All rights reserved.

Part Two.

General Pricing Approaches

●Demand-Oriented Pricing Approaches●Cost-Oriented Pricing Approaches●Profit-Oriented Pricing Approaches●Competition-Oriented Pricing Approaches

FIGURE 12-2FIGURE 12-2 Four approaches for selecting an approximate price level

12-3

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Skimming Price

●Beginning price is the highest possible.●Often used for new products.

http://www.apple.com/iphone/iphone-3gs/

Effective when:

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1) Enough customers will buy the product at the high price to make these sales profitable

2 ) The high initial price will not attract competitors

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3) Lowering price has only a minor effect on increasing sales volume and reducing unit costs

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4) Customers interpret the high price as high quality.

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These four conditions exist when patents or copyrights protect the product or the product has a uniqueness that customers understand and that they value.

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Skimming Price

http://www.apple.com/iphone/iphone-3gs/

PRICE

Sales Volume

$400$350

$300$250

$200 http://farm3.static.flickr.com/2218/2658111331_ea009217f2.jpg

.

FIGURE 12-2FIGURE 12-2 Four approaches for selecting an approximate price level

12-6

Penetration Pricing

●The opposite of price skimming.●A product is sold at a very low price in order to immediately appeal to the mass market.

http://www.shopping.hp.com/webapp/shopping/store

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. .

Predatory pricing is illegal.

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FIGURE 12-2FIGURE 12-2 Four approaches for selecting an approximate price level

12-8

Prestige Pricing

●Prestige pricing involves setting a high price so that quality- or status-conscious consumers will be attracted to the product and buy it.

●Products prestige pricing may sell worse at lower prices than at higher ones because buyers tend to associate a lower price with lower quality.

http://www.thechicecologist.com/wp-content/uploads/2008/12/diamond.jpg

$30,000

.

$49.99 $49.99

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.

.

FIGURE 12-2FIGURE 12-2 Four approaches for selecting an approximate price level

12-10

Odd-Even Pricing

●Pricing at .99 instead of 1.00●$499.99 instead of $500.●$29,999 instead of $30,000

FIGURE 12-2FIGURE 12-2 Four approaches for selecting an approximate price level

12-12

Target Pricing

Consumer

Retailer

Wholesaler

Manufacturer

Consumer will pay $120

Retailer will pay $60

Wholesaler will pay $36

Manufacturing cost is $32, notthe needed $26.

..

..

FIGURE 12-2FIGURE 12-2 Four approaches for selecting an approximate price level

12-14

Bundled Pricing

http://gooddesignagewell.com/2008/11/03/mcdonalds-happy-meal-of-the-future/

FIGURE 12-2FIGURE 12-2 Four approaches for selecting an approximate price level

12-16

Yield Management Pricing

http://www.aviationexplorer.com/Airline%20Seating%20Charts/

Airbus_A320_Northwest_Airlines_Seating_Chart.gif

28

1 2 3 4 5 6 78 9 10 1112 1314

$200.

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Yield Management Pricing

28

1 2 3 4 5 6 78 9 10 1112 1314

$20015

$275

Yield Management Pricing

28

1 2 3 4 5 6 78 9 10 1112 1314

15

$2751716

$350

Yield Management Pricing

28

1 2 3 4 5 6 78 9 10 1112 1314

15 1716

$35018 1920 21

22

Yield Management Pricing

28

1 2 3 4 5 6 78 9 10 1112 1314

15 1716

$35018 1920 21

22

$525

Yield Management Pricing

28

1 2 3 4 5 6 78 9 10 1112 1314

15 1716 18 1920 2122

$5252324 25 26 27

Yield Management Pricing

http://www.aviationexplorer.com/Airline%20Seating%20Charts/

Airbus_A320_Northwest_Airlines_Seating_Chart.gif

28

1 2 3 4 5 6 78 9 10 1112 1314

15 1716 18 1920 2122

$5252324 25 26 27

FIGURE 12-2FIGURE 12-2 Four approaches for selecting an approximate price level

12-24

End of Part Two.Go to Part Three.

End of Part Two.Go to Part Three.