Alexander Consulting EnterpriseAlexander Consulting Enterprise 04/19/2304/19/23
Pricing Strategies
Alexander Consulting EnterpriseAlexander Consulting Enterprise 04/19/2304/19/23
1. Pricing Methods
“The employer does not pay the salaries. It is the customer who pays for the salaries. The employer is just handling the monetary transaction”
Henry Ford
Alexander Consulting EnterpriseAlexander Consulting Enterprise 04/19/2304/19/23
- Cost Oriented Full cost pricing: Price = Fixed Cost + Profit + Variable Cost Markup pricing: Price as a percentage of sales Incremental cost pricing: Price is set to cover variable cost only
- Demand Orientated
Price is set according to the firms estimate of potential buyers’ price elasticity.
Alexander Consulting EnterpriseAlexander Consulting Enterprise 04/19/2304/19/23
Skim pricing Penetration pricing
- product has strong relative advantage- low elasticity of demand- low competition- product is differentiated and difficult to copy- small total market
- economies of scale in production- high elasticity of demand- strong competition- product is not differentiated and easy to copy- large market
2. Skim pricing versus penetration pricing
Alexander Consulting EnterpriseAlexander Consulting Enterprise 04/19/2304/19/23
Zeit
accu
mul
ated
Cas
h F
low Skimming
Penetration
Cash Flow Pattern of Pricing Strategies
Alexander Consulting EnterpriseAlexander Consulting Enterprise 04/19/2304/19/23
3. Legal restrictions of pricing decisions
- Dumping
- Price fixing
- Price discrimination
- Price advertising
While governmental restrictions on pricing vary among different nations, most developed countries have laws relating to:
Alexander Consulting EnterpriseAlexander Consulting Enterprise 04/19/2304/19/23
4. Costs of Exporting
Taxes
Tariffs
Administrative Costs
Inflation
Exchange Rate Fluctuations
Varying Currency Values
Alexander Consulting EnterpriseAlexander Consulting Enterprise 04/19/2304/19/23
5. Lessening Price Escalation
1. Lower Cost of Goods Lower Manufacturing Costs Eliminate Functional Features Lower Quality
Alexander Consulting EnterpriseAlexander Consulting Enterprise 04/19/2304/19/23
2. Lower Tariffs Tariff Reclassification Product Modification Partial Assembly Repack aging
3. Lower Distribution Costs Shorten Channels of Distribution Lower Shipping Costs
4. Foreign Trade Zones
Alexander Consulting EnterpriseAlexander Consulting Enterprise 04/19/2304/19/23
6. Countertrades
BarterBarter
Compensation DealsCompensation Deals
Counterpurchase or Offset TradeCounterpurchase or Offset Trade
Product Buy-Back AgreementProduct Buy-Back Agreement
Alexander Consulting EnterpriseAlexander Consulting Enterprise 04/19/2304/19/23
7. Why Countertrade?
To Preserve Hard CurrencyTo Preserve Hard Currency
To Improve Balance of TradeTo Improve Balance of Trade
To Gain Access to New MarketsTo Gain Access to New Markets
To Upgrade Manufacturing
Capabilities
To Upgrade Manufacturing
Capabilities
To Maintain Prices of Export GoodsTo Maintain Prices of Export Goods
Alexander Consulting EnterpriseAlexander Consulting Enterprise 04/19/2304/19/23
8.Transfer Pricing
Manipulation of TaxesManipulation of Taxes
Manipulation of Duties and CustomsManipulation of Duties and Customs
Repatriation of ProfitsRepatriation of Profits
Management of DivisionsManagement of Divisions
Alexander Consulting EnterpriseAlexander Consulting Enterprise 04/19/2304/19/23
9. Gray Trades
Currency Exchange RateCurrency Exchange Rate
Import QuotasImport Quotas
Different PositioningDifferent Positioning
Opportunities for Parallel Imports Arise through Price Differentials
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