Professional Documents
Culture Documents
Pricing Decisions
Chapter topics: Pricing concepts Pricing P i i objectives bj ti Price setting Target costing Environmental issues Pricing policy alternatives Gray market goods Dumping Price fixing Transfer pricing Countertrade
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2011 Pearson Education, Inc.
Pricing Objectives
Objective Profitability Objectives Purpose Profit Maximization Target Return Sales Maximization Market Share Value Pricing Lifestyle Image Profit Maximization Cost Recovery Market Incentives Market Suppression Example Low introductory interest rates on credit cards with high standard rates after 6 months Compaqs low-priced PCs increase market share and sales of f services Price wars among major airlines High-priced luxury autos such as Ferrari and watches by Rolex High prices for tobacco and alcohol to reduce consumption p
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National markets
Costs Competition Regulation
Fragmented g beer market: Budweiser, the leading global brand, has less than 4% market share Heinekens price in Japan is a function of competition titi with ith other th i imports t and d th the national producers. 11-3
Volume Objectives
Global markets
Diamonds Di d Crude oil Commercial aircraft Integrated circuits
Not-for-Profit Objectives
2011 Pearson Education, Inc.
Price Setting
Select pricing objective(s) Determine demand Estimate costs Analyze competitors pricing Assess regulatory factors Select S l price i & price-adaptation strategies
2011 Pearson Education, Inc.
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Charging a low price in order to penetrate market quickly Appropriate A i t to t saturate t t market k t prior to imitation by competitors Packaged food product makers, with products that do not merit patents, may use this strategy to get market saturation before competitors copy the product
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Cellular service providers subsidize the phone and make money on calling plans
Obey the cardinal rule: If the design team cant can t meet the targets, the product should not be launched.
2011 Pearson Education, Inc.
method
Per-unit product costs are the sum of all past or current direct and indirect manufacturing and overhead costs
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2011 Pearson Education, Inc.
Currency Fluctuations
Inflationary Environment
Defined as a persistent upward change in price levels Can be caused by an increase in the money supply Can be caused by currency devaluation Essential requirement for pricing is the maintenance of operating margins 11-17
2011 Pearson Education, Inc.
accounts for a long time restrict p profits taken out of the country and limit funds paid for imported material l Restrict price competition
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Competitive Behavior
If competitors do not adjust their prices in response to rising costs, it is difficult to adjust j your y pricing p g to maintain operating margins If competitors are manufacturing or sourcing in a lower-cost country, it may be necessary to cut prices to stay competitive p
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2011 Pearson Education, Inc. 2011 Pearson Education, Inc.
Geocentric Pricing
Intermediate course of action ti g that several Recognizes factors are relevant to pricing p g decision
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Dumping
Sale of an imported product at a price lower than that normally charged in a domestic market or country of origin Occurs when imports sold in the US market are priced at either levels that represent less than the cost of production plus an 8% profit margin or at levels below those prevailing in producing g countries the p To prove, both price discrimination and injury must be shown
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2011 Pearson Education, Inc. 2011 Pearson Education, Inc.
Dumping
In 2003, the Southern Shrimp Alliance protested that six countries were dumping p in the US shrimp The International Trade Commission agreed g and allowed the US Dept. of Commerce to raise duty rates on shrimp from India, China, Brazil, Vietnam, Ecuador, and Thailand
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Price Fixing
Representatives of two or more companies secretly sec et y set s similar a p prices ces for o t their e p products oducts
Illegal act because it is anti-competitive
Transfer Pricing
Pricing of goods, services, and intangible property t b bought ht and d sold ld by b operating ti units it or divisions of a company doing business with an affiliate ffili t in i another th jurisdiction j i di ti Intra-corporate exchanges Cost-based transfer pricing Market Market-based based transfer pricing Negotiated transfer pricing
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2011 Pearson Education, Inc.
Horizontal price fixing occurs when competitors within an industry that make and market the same product conspire to keep prices high Vertical price fixing occurs when a manufacture conspires with wholesalers/retailers to ensure certain retail prices i are maintained i t i d
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2011 Pearson Education, Inc.
Countertrade
Countertrade occurs when payment is made in some form other than money Options
Barter Barter Counterpurchase or parallel trading p g Offset Compensation Compensation trading or buyback Switch trading g
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2011 Pearson Education, Inc. 2011 Pearson Education, Inc.
Barter
Th The least l t complex l and d oldest ld t form f of bilateral, non-monetary countertrade A direct exchange of goods or services between two parties
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