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Two competing vitamin brands, unicaps and unidose vitamins by schultz, and compares their pricing strategies. Topics such as cost-based pricing, target pricing, competition-oriented pricing, initiating price changes, and product line pricing. It also includes examples of pricing systems and their implications.
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Unicaps
are
advertised heavilyand are well knownvitamins from arespected company.
Unidose
vitamins by
Schultz - Schultzmakes cosmetics andperfumes (withnames like
) and
decided to mix theingredients to makevitamins.
Example of
Developing the Distribution
System
(All prices per bottle of 100)
Unicap
vitamins by
Upjohn
-^
Advertised
-^
Retail price = $4.
-^
Wholesale price =$3.
-^
Resulting margin toretailer = $1.
Unidose
vitamins by
Schultz
-^
Not advertised
-^
Retail price = $4.
-^
Wholesale price = $2.
-^
Resulting margin toretailer =
-^
V. RELATE COSTS AND DEMAND (Estimate the costs for producing at several levelsof output)(Perhaps graph the functional relationships)
-^
VI. SET THE STRATEGIC PRICE
PRICE SETTING IN PRACTICE
Cost Based Pricing^ –
MARKUP-PRICING - adding some fixed % to unit costs:Why use this???
-^
Simple
-^
Leads to price similarity
-^
Social Fairness
Benefits: Seller does not take advantage of a buyerwith an acute demand problem - seller earns a fairreturn.
PRICE SETTING IN PRACTICE (continued.)
-^
TARGET PRICING
specified target rate of returnLimitation: Demand may be influenced byprice.
Must consider
Buyer reactions, e.g., elasticity and perceptions.Competitive reactions.Meeting price changes of competitors ?? Sometimesno decision.
Tylenol owned theacetominaphen market
-^
Tylenol kept a highprice
-^
Datril entered -competing on price
-^
Tylenol cut their priceimmediately
Datril is just like Tylenol -only cheaper
-^
After McNeil laboratoriescut price
-^
Few people switched
-^
Bristol Myers lost millions..
Objective: A set of prices that maximizes demand from the entire line.
(e.g., Good, Better, Best)
Must consider:
Interrelationship of demand (substitutes, complements, unrelatedfactors).Interrelationship of costs (production, scheduling).Effect of competition.
-^
FUNCTIONAL DISCOUNT
(to other channel members -
offer price which allows retailers and wholesalerstraditional markups)
-^
QUANTITY DISCOUNT
amount of purchase.
-^
GEOGRAPHICAL DIFFERENCES
the buyer
-^
SEASONAL DISCOUNTS
-^
BUYER’S PERSONAL SITUATION
an adjustment - e.g., to keep a buyer in business.
Types of PRICE ADJUSTMENTS CONT
-^
(reflects the savings -
avoiding finance and interest costs)
Promotion
