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Powerpoint Slides With Teaching Notes
Power Point Slide Teaching Notes
15-1: Strategic Pricing Methods
15-2: Learning Objectives These are the learning objectives for this
chapter.
15-3: Groupon.com McDonald’s announced plans to introduce
chicken wings for a limited time.
It also released projections that it would sell
approximately 250 million orders.
Ask students Should McDonald’s sell chicken
wings? If so, then how much would you pay?
15-4: Pricing Strategies Note the many factors that go into formulating
a pricing strategy and discuss why some
strategies choose not to take into consideration
the value that consumers place on an offering.
15-5: Cost-Based Methods These simple methods add a percentage
amount to the unit cost to derive the price of
the good.
Ask students: Simplicity is the major benefit
of this method; what are some of the potential
problems associated with it?
Answer: It does not consider what the value
the customer places on the product or service.
15-6: Competitor-Based Methods Ask students: Why would someone pay far
more for the same item in different stores? For
example – the same diamond at Costco and
Tiffany’s.
Real estate prices are based heavily on the
prices of other homes in the area. There are
many websites like zillow.com to help gather
information when pricing your home.
This web link takes you to the Zillow
homepage.
15-7: Value-Based Methods Sellers need to determine consumer value
perceptions.
The print ad for Omega points to a watch with
higher quality.
This YouTube ad (always check link before
class) depicts the value the Mercedes-Benz
brand offers in both the beauty and brains
categories.
15-8: Improvement Value Method Using the improvement value method for a
laptop you can calculate the price that could be
charged for a new laptop.
Suppose the key features were – weight of the
laptop, processing speed, and hard drive
capacity and battery life.
The improvement value of the new laptop on
these four features is provided in column two.
The benefit weights are provided in column
three and the weighted factor – multiplication
of improvement value and benefit weight is
provided in column four.
The overall analysis suggests a 21%
improvement value of the new laptop relative
to the comparison laptop.
Thus, we could charge somewhere up to 21%
more using this method.
15-9: Costs of Ownership Method Installing solar panels on a home is costly, but
the savings over the life of the panels make the
cost much lower than traditional electric
power.
Governments offer incentives that lower the
initial investment, in hopes that more
homeowners will switch to using solar power.
The ad shows a watch that might be expensive
but, because it is “unstoppable” it will last a
long time and is therefore a good purchase.
Ask students: What incentive would you need
to do so? What method could you use to
determine it?
15-10: Check Yourself 1. Cost based, competitor based, value
based
2. Value based include approaches to
setting prices that focus on the overall value
of the product offering as perceived by the
consumer. Two key approaches include
Improvement Value Method and Cost of
Ownership Method.
15-11: Pricing Strategies This slide introduces the subsequent series of
slides or can be used as a basis for a shortened
lecture.
15-12: How to Pick the Right Diamond After viewing the video as students why this
purchase is so important?
They will realize it is because it is expensive,
but also a rare and emotional connected
purchase.
Note: Please make sure that the video file is
located in the same folder as the PowerPoint
slides.
15-13: Everyday Low Pricing vs.
High/Low Pricing
Group activity: Imagine you need an outfit for
an upcoming party.
You can visit TJMaxx, where you know you
will find an EDLP pricing strategy.
However, Nordstrom is having its semi-annual
sale, during which it drastically marks down its
usually high prices.
Where do you think you will find a better
price? Which offers better value? Why?
15-14: Consumers’ Use of Reference Prices Group activity: In groups, list the average
prices of the following items: rent on a
one-bedroom apartment, a backpack, a
washing machine, a mid-size car, a house, a
bicycle, and a soda. Compare the price points
among groups.
Usually, students provide relatively accurate
price points for products they use frequently,
but their estimates likely vary significantly for
the other items.
Discuss how they determined these prices
15-15: Reference Pricing This is an interesting ad – it does not give the
original price of the products, but gives proof
that the products are discounted from the
regular price..
This positions the clothing as higher value so
that when the consumer shops for clothing and
compares prices, they know they are receiving
more value for their money.
15-16: New Product Pricing Group activity: Develop a list of products that
might use price skimming versus penetration
pricing.
What qualities should a product possess to use
a price skimming strategy?
For example, Godiva introduced its hot
chocolate mix at a price point that was double
that of other hot cocoa mixes.
How was it able to achieve success with this
product?
Penetration pricing helps firms build market
share for their new products quickly, but
consumers must be price elastic for this
strategy to work.
15-17: Check Yourself 1. EDLP saves search costs of finding
lowest overall prices, and High/low
provides the thrill of the chase for the
lowest price.
2. Price skimming and penetration
pricing.
15-18: Pricing Tactics Strategies must balance all 5Cs; tactics tend to
focus on select components
15-19: Pricing Tactics Aimed at Consumers This slide can be used as the basis for a
shortened lecture or to introduce the
subsequent slides
15-20: Markdowns Ask students: are markdowns used only to
take care of buying mistakes?
Answer: no, sometimes retailers use
markdowns to generate traffic into the store.
15-21: Quantity Discounts for Consumers Consumers often enjoy quantity discounts, but
remind students that bigger packages do not
always mean lower unit prices.
15-22: Seasonal Discounts B2B consumers are encouraged to buy early,
but for consumers, seasonal discounts also
encourage them to buy after the season so
sellers can get rid of leftover merchandise.
Ask students: Have you ever bought wrapping
paper right after Christmas?
How much did you save?
15-23: Coupons and Rebates Ask students: When did you last use a coupon
or a rebate? For what type of product? How
much did you save with the rebate/coupon?
For what kind of products would you expect to
find a coupon or rebate? How do coupons or
rebates influence your purchases?
This YouTube video (always check link before
class) is a very typical local car sales ad?
Ask students why these are effective?
They give discounts, trade ins, and always
have a deadline which promotes urgency in the
consumer.
15-24: Leasing Leasing is good because they can lease a better
car then they might be able to afford. In
addition, consumers often get tired of their cars
and want to try something new.
15-25: Price Bundling Price bundling can be used to achieve a variety
of objectives.
Ask students: what are some examples of
commonly price bundled items?
Answer: meals at fast-food restaurants, cruise
vacations, grocery store items.
15-26: Leader Pricing Ask students: what are some examples of
leader priced items?
Answer: milk, eggs, coffee, white bread.
15-27: Price Lining Ask students to think about a product that
offers different levels of quality (e.g., cars,
hotels, and clothing).
How do firms use price lining to establish
differences between the products? Give
specific examples.
Answer: Mercedes Benz offers the C class for
the lower, an E class for the medium, and the S
class for the highest price lines.
Ralph Lauren offers different lines at different
price points as well: Chaps, Polo/Ralph
Lauren, Ralph Lauren Black Label, and Purple
Label.
15-28: Business to Business Pricing Tactics
and Discounts
This slides provide the basis for a shortened
lecture or introduces the more detailed
discussion that follows.
15-29: Seasonal Discounts Just as consumers do, businesses benefit from
seasonal pricing, though with different timing.
Most retailers place their Christmas orders in
the summer or early fall.
Some vendors give them an extra discount to
place orders well in advance of the selling
season.
Ask students: why would a vendor offer a
seasonal discount to retailers? Answer:
Because they can plan their production and get
the inventory out of their warehouses and into
the hands of the retailers.
15-30: Cash Discounts Sellers want outstanding invoices paid as soon
as possible and therefore offer discounts to
encourage it.
Ask students: Would you pay your rent bill
early if you received a monetary incentive to
do so?
15-31: Allowances As the questions at the end of several chapters
show, slotting allowances have become quite
controversial, even prompting Congressional
hearings.
Group activity: Split the class in half. One
half represents smaller producers who believe
they are being shut out of grocery markets by
slotting fees, which can reach $10,000 per
store or more.
The other half represents grocers, who consider
slotting fees necessary for their survival in the
competitive marketplace.
Conduct a debate that presents both sides of
this issue.
15-32: Quantity Discounts Ask students: Why would a vendor offer a
quantity discount to a retailer?
Answer: It helps them plan their production
schedule. If may stimulate the retailer to buy
more merchandise.
It actually costs less on a per unit basis to sell
more in one order than less, e.g., transportation
expense.
15-33: Uniform Delivered vs. Zone Pricing Online shoppers know that delivery can add a
significant amount onto cost; the same is true
for B2B transactions, in which sellers often
vary their delivery charge calculations based
on where the customer lives.
15-34: Check Yourself 1. Price lining. price bundling. leader
pricing
2. Seasonal discounts, cash discounts,
allowances, quantity discounts, uniform
delivered versus zone pricing
15-35: Legal Aspects and Ethics of Pricing A host of laws and regulations at both the
federal and state levels attempt to prevent
unfair pricing practices, but some are poorly
enforced, and others are difficult to prove.
15-36: Deceptive or Illegal Price
Advertising
Ask students: When is a sale not really a sale?
Answer:
If the merchandise is placed on the retail floor
and almost immediately put on sale, then it is
considered to be deceptive because the
merchandise was never really sold at the higher
price, but consumers are expected to believe
that they are receiving a significant discount.
Ask students: Have you ever been involved
in a bait and switch?
15-37: Predatory Pricing Ask students: How would a company prove
predatory pricing?
They would need records which show intent or
have interviews of those who can verify the
intent to drive competition out of business.
In addition, they must show that the company
charged prices lower than its average costs.
To date, no one has been able to prove that
Wal-Mart engages in predatory pricing.
15-38: Price Discrimination Price discrimination in a B2B setting isn’t
always illegal.
It is legal to give quantity discounts, to meet
competition, and in barter situations.
Ask Students: Why are quantity discounts
legal? Because it costs less on a per unit basis
to sell to customers that buy larger quantities
15-39: Price Fixing Ask students: How many products list a
manufacturer’s suggested retail price? How
many indicate a retail price instead?
Note that MSRPs are a form of vertical price
fixing; the manufacturer sets the price, and
wherever the consumer shops, the price will be
the same.
However, some retailers argue that this form of
price fixing prevents them from passing lower
costs on to consumers.
Ask students: What do you think?
15-40: Fraud on eBay EBay offers great prices but there is some risk
to consumers. What was the fraud here?
Note: Please make sure that the video file is
located in the same folder as the PowerPoint
slides.
15-41: Check Yourself Deceptive reference prices, loss leader pricing,
bait and switch
