Pricing Strategies PDF

Chapter 2 (Cluster 1) Absorption Costing and Transparent Pricing 4..Assign activity cost drivers to each cost pool. Absorption pricing is a method for setting prices, Cost drivers are things (e.g., units, hours, under which the price of a product includes all...

Chapter 2 (Cluster 1) Absorption Costing and Transparent Pricing 4..Assign activity cost drivers to each cost pool. Absorption pricing is a method for setting prices, Cost drivers are things (e.g., units, hours, under which the price of a product includes all of the parts, etc.) that control the changes in variable costs attributable to it, as well as a proportion costs. For example, purchasing costs are of fixed costs.This is a variation on the full cost, plus driven by the number of parts purchased. pricing concept,in that the full cost is charged to a 5. Divide the total overhead in each cost pool by product, but profit is not necessarily factored into the the total cost drivers to get your cost driver price (though it is likely to be). rate.Lastly, compute how many hours, parts, units, etc. that the activity used and multiply it the word "absorbed," because all costs are by the cost driver rate. absorbed into the determination of the final price. Auction-Type Pricing An auction is a sales event wherein potential buyers Variation on the concept of absorption pricing created competitive bids on assets or services either in is called freight absorption pricing, under an open or closed format. Auctions are famous which the seller of goods includes the cost of because buyers and sellers believe they will attain a the freight to the buyer units calculation of the good deal buying or selling assets. price of the product. English Auctions (ascending bids). One seller formula is: Variable cost per unit + (Total and many buyers. overhead + administrative expenses) / units Dutch Auctions (descending bids). One seller produced and many buyers, or one buyer and many sellers. Accumulated Production auction is the overall event or process where Expenditures include the adjusted basis (or portion) of items are sold to the highest bidder, any equipment, facilities, or other similar assets, used bidding is the action participants take during in a reasonably proximate manner for the production of the auction to compete for the item. a unit of designated property during any measurement period in which the asset is so used. Brand Price Trade Off one of a statistical technique used in market research Experience curve refers to a diagrammatic and marketing sciences. representation of the inverse relationship between the Brand price trade-off employs a relatively total value-added costs of a product and the company simple direct approach to gain insights into experience in manufacturing and marketing it. consumers' sensitivity to price in a competitive purchase scenario. Learning curve is a graphical representation that shows the decrease in average labor cost Bait and Switch Tactics is a sales tactic that gives in repetitive operations as the employees customer with low prices to not available items to sell obtain more learning them on a similar and pricier item. experience curve depicts the overall cost saving as the production grows in volume. Bait and switch is an unlawful, deceptive The more you produce the lower you cost practice that lure customers into a store by advertising a product at a lower-than normal price (the bait) and then, Activity Based Cost Accounting once they are in the store, induces them to purchase a The activity-based costing (ABC) is a method of higher-priced model (the switch). accounting that can be used to determine the total cost of production in developing a new product. Bonus pack offers the consumer an extra amount of a product at the regular price by providing extra units. This Process for assigning costs to activities. gives the consumer more value for the money. Steps in Activity-based Costing Break even sales is the amount of revenue at which a 1. Identify activities that are necessary to create certain enterprise earns a profit of zero. This sales a product. amount is the underlying fixed expenses of a business, 2. Separate each activity into its own cost pool, plus all of the variable expenses associated with the 3. Determine the total overhead of each cost sales. pool. Broad Cost Leader This strategy attempts to be the low-cost producer in Distinct Type of Cost Based Pricing: every segment of the market. It will have good profit Full cost pricing - Full cost pricing takes into margins on all sales while keeping prices low for consideration both variable, fixed costs and price-sensitive customers. apercent markup Broad Differentiation Direct-costpricing-Direct-costpricingisvariablec This was defined as a strategy that will seek to create ostsplusapercentage mark. upmarkup maximum awareness and brand equity. Cost Oriented Pricing Cost oriented pricing certainly costs are an important Broad Price Policy component of pricing. No firm can make a profit until In a firm, broad price policy sets the overall direction for it covers its costs. However, the process of having pricing efforts and making sure that the price determining costs and setting a price based on costs decisions are coordinated with the target market, image does not take into account what the customer is willing and other marketing elements. to pay at the marketplace. 1. Skimming Pricingis the strategy during the introductionstage of the product life cycle that sets its Customary Pricing highest possible price. Some products' prices can remain the same for so 2. penetration pricing the strategy of charging a long that they almost become a tradition. By custom or low price for the new product convention, certain products are sold almost at the same price by different marketers. Captive Pricing The firm tries to price their product low to attract buyers Customer Perceived Value Pricing and recover from the bigger volume expected in the Customer perceived value pricing is that value which accessories or consumables. customers are willing to pay for a particular product or Channel Pricing service based on their perception about the product. Distribution channels are a set of independent organizations that are involved in the process of making (Cluster 2) a product available for use or for consumption by Customer Segment Pricing customer or individual level. Many optimistic entrepreneurs assume that if they Channel pricing is the use of a distribution channel as make their product good enough,it can attract anybody a factor in pricing. It is common for firms to offer and everybody-regardless of age, gender, income, and different prices depending where you buy an item. a whole lot of other factors. Clearance Markdowns for Fashion Merchandise 1. Single Target Market Approach is A markdown is cutting down a certain amount of segmenting the market and picking one of the percentage from the merchandise original price. homogeneous segments as the firm's target Clearance markdown is also in this branch of pricing market. 2. Multiple Target Market Approach is Company Pricing Policies segmenting the market needing a different The company objectives will have a big effect on its marketing mix. pricing strategy and need to balance between high 3. Combined Target Market Approach is profit and market shares objectives and consequently, combining two or more submarkets into one between regular dividends and revenue growth. larger target market as a basis for one strategy. Competition-based Price Strategy Customer Value Based Pricing A competitive pricing strategy, a.k.a. market-oriented An increasing number of companies are basing their pricing strategy, si an approach in which e-commerce pricing on the products perceived value. retailers set their online prices based on competition Value based pricing is setting prices based rather than consumer-oriented pricing. on buyers' perceptions of value rather than on the seller's cost. Complementary pricing strategy involves selling Deceptive Reference Pricing packages or set of goods or services at lower prices defined reference price as the price against which than they would have actually cost if sold separately. buyers compare the actual selling price of the product, This is an effective strategy to bundle unsold products and thus it facilitates their evaluation process. or products with less demand  1. Trade discount is the type of discount which Demand-based price strategy is when the firm sets allows the quoted price with reference specific the prices after researching consumer desires and position enjoyed by the buyers in the channel makes sure the ranger of prices is acceptable to the of distribution. target market. 2. Seasonal discount is the type of discount a pricing method based on the customer's which deduction is allowed over and above the demand and the perceived value of the trade discount in cases of products which have product. only seasonal demand. 3. Quantity discount is the type of discount which a. Perceived Value, use the perception of customers allows off the quoted price to the buyers on the in establishing its prices. basis quantities bought. b. Demand Differential, marketers choose a price Dynamic Pricing Strategy level that would support their planned sales volume In dynamic pricing the price is not firmly set instead it and profit changes based on changing circumstances, such as Some of demand-based pricing methods are: increases in demand at certain times, type of customer 1. Price Skimming - Initial price is set very high being targeted or changing marketing conditions. so that only the customers with more purchasing power can buy the product. Escalator Clauses 2. Price Discrimination - Customers are charged Price is the amount of money asked or given for differently based on different demand. "something". It is hard to come up with the right price 3. Price Penetration- This is exact opposite to the that will match the quality of a product or a service. priceskimming Diagnostic Perception Pricing Escalator clauses happen when it is not in Diagnostic identification of a condition, disease, demand and there is no increase to its price disorder, or problem by systematic analysis of the index. It can also lower its prices in order to background or history, examination of the signs or have a manageable sale and prevent symptoms, evaluation of the research ortest results, overpricing. and investigation of the assumed orprobable causes. Estimating Cost Effective prognosis is not possible without effective Demand sets a ceiling on the price the company can diagnosis. charge for its product. Perception in marketing, its described as a Estimated Future Cost Method process by which a consumer identifies, In cost accounting, the high-low method is a way of organizes, and interprets information to create attempting to separate out fixed and variable costs meaning. / can be shaped by learning, given a limited amount of data. memory and expectations. Demand Curve Pricing process whereby abusiness sets the In economics, demand curve is a graph depicting the price at whichit wil sell its products and relationship between the price of a certain commodity services, and may be part of the business's (the y-axis) and the quantity of that commodity that si marketing plan. demanded at that price (the x-axis). Differential Pricing Strategy Demand curves may be used to model the referred as discriminatory pricing, this means charging price- quantity relationship for an individual different prices to different buyers for the same quality consumer (an individual demand curve), or and quantity of product more commonly for all consumers in a seek to offer users the best price option particular market (a market demand curve). enabling them to finalize their purchase. Everyday Low Pricing All profit and nonprofit organizations must set prices on Discount and Allowance Pricing their products and services. Businesses face two risks when setting prices for their Price is the amount of money charged for a products. If the price is set too high, product product or service or the sum of the values demand will be low. If the price is set too low, the that consumers exchange for the benefits of business will be unable to make a profit. having or using the product. Businesses must develop pricing strategies to avoid Experience Curve Pricing and Product Line Pricing these risks. The concept of the experience curve goes back to the aircraft industry in the 1920s when it is observed that the number hours needed to manufacture decreased the brand at a higher price level. Amarket reality is that at a uniform rate as the quantity of airframes produced whenever price is much more difficult than lowering increase them. While low price may be a good tool to attain or grabmarket shares, low price is equally effective in Fight Strategy gaining market shares back, of course, the successful A price war is a kind of competitive exchange among or "Penetration" pricing of rival companies wholower the price points on their products, in a strategic attempt to undercut one another and capture greater market share. Fixed Pricing setting the price of the product per-serving, that will make your customer feel that they can buy your product in lower price comparing to other seller. The objective of this strategy are: Make your business more profitable. & Increase sales volume (quantity) Flexible pricing is a strategy in which the final price at which the product or service being sold is open for negotiation between buyers and sellers Focus/Niche cost leader was defined as a strategy that seek to dominate the price sensitive market segments. Its aim is to set prices below all competitors - and still beprofitable. With a multiple product lines in the low-tech segments (Low End & Traditional). That invest heavily in automation and spends moderately on advertising to cost sensitive customers (sales people have more than one product to pitch to prospects). It also focuses on ROS, ROE and Profits. Focus/Niche Differentiation This strategy will seek to be well-known as a top producer of good performing products in each of the targeted segments. it focuses on ROA, Asset Turnover, and ROE. With multiple product lines in high-tech segments (High End, Performance, and Size) and with high promotion and sales investments to create maximum awareness and accessibility. But focuses on other minimum segments and is unlikely to invest in increased automation or production capacity. foolish fellowship While external factors may be similar to competing companies, internal factors are not. Different companies have different objectives, different cost structures, and different strengths. Abusing and overusing competitor's price or "going-rate" pricing is common practice among lazy marketers. Marketers remember that the more unique their products are, the more flexible they can be formulating pricing. Foolish Penetration Also, the power who patronize the brand at alower pricemay not be same consumers willing to patronize