Chapter 16Developing Price Strategiesand Programsby                                PowerPoint by                          ...
Kotler onMarketingSell value,not price.              www.bookfiesta4u.blogspot.com   11-483
Chapter ObjectivesIn this chapter, we focus on threequestions:  How should a price be set on a product or  service for the...
Figure 16.1: Nine Price-Quality Strategies            www.bookfiesta4u.blogspot.com    11-485
Figure 16.2: Price Should Align with Value            www.bookfiesta4u.blogspot.com    11-486
Setting the PriceStep 1: Selecting the pricing objective    Survival    Maximize current profits    Maximize their market ...
Many companies engage in “marketskimming,” offering new products atwhatever price the market will bear, thenover time decr...
Maytag’s homepage presents its “corporate family of brands”   www.bookfiesta4u.blogspot.com   11-489
Setting the PriceStep 2: Determining Demand  Price sensitivity  Total Cost of Ownership (TCO)            www.bookfiesta4u....
Setting the PriceTom Nagle offers this list of factors associatedwith lower price sensitivity   The product is more distin...
Setting the PriceEstimating Demand CurvesPrice Elasticity of Demand  Inelastic  Elastic  Price indifference band          ...
Setting the PriceStep 3: Estimating Cost  Types of Cost and Levels of Production    Fixed costs (overhead)    Variable cos...
Setting the Price  Differentiated Marketing Offers    Activity-    Activity-based cost (ABC) accounting  Target costingSte...
Setting the PriceStep 5: Selecting a Pricing Method  Markup Pricing   Unit Cost =    variable cost + (fixed cost/unit sale...
Setting the Price  Break-  Break-even volumeBreak-Break-even volume = fixed cost / (price – variable cost)  Perceived-  Pe...
Setting the PriceValue Pricing  Everyday low pricing (EDLP)  High-  High-low pricingGoing-Going-Rate PricingAuction-Auctio...
Table 16.1: Effect of Different Bids            on Expected Profit                             Probability                ...
volumebuy.com: group or pool pricing         www.bookfiesta4u.blogspot.com   11-499
Some large entities, both public and private,currently bid online for many products and services.Do you think there will b...
Setting the PriceStep 6: Selecting the Final Price  Psychological Pricing    Reference price  Gain-and-Risk-  Gain-and-Ris...
Setting the Price  Brands with average relative quality but high relative  advertising budgets charged premium prices  Bra...
Adapting the PriceGeographical Pricing (Cash,Countertrade, Barter)    Countertrade    Barter    Compensation deal    Buyba...
Table 16.2: Price Discounts and AllowancesCash Discount:       A price reduction to buyers who pay bills                  ...
Adapting the PricePromotional Pricing  Loss-  Loss-leader pricing  Special-  Special-event pricing  Cash rebates  Low-  Lo...
Adapting the PriceDiscriminatory Pricing  Customer segment pricing  Product-  Product-form pricing  Image pricing  Channel...
Adapting the PriceProduct-Product-mix pricing  Product-  Product-Line Pricing  Optional-  Optional-Feature Pricing  Captiv...
personify.com provides software that helps  Web merchants find target customers         www.bookfiesta4u.blogspot.com     ...
Initiating and Responding to         Price Changes Initiating Price Cuts   Drive to dominate the market   through lower co...
Table 16.3: Marketing-Mix AlternativesStrategic Options        Reasoning                       Consequences1. Maintain pri...
Initiating and Responding to Price Changes  Table 16.4: Profits Before and After a Price Increase             Before      ...
Initiating and Responding to         Price Changes Initiating Price Increases   Cost inflation   Anticipatory pricing   Ov...
Initiating and Responding to         Price ChangesPossible responses to higher costs or overhead withoutraising prices inc...
Initiating and Responding to         Price Changes Reactions to Price Changes   Customer Reactions   Competitor Reactions ...
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Marketing management-by-philip-kotler-719-slides-1234238345990514-2 untitled9-9_untitled5_5_untitled3_3

  1. 1. Chapter 16Developing Price Strategiesand Programsby PowerPoint by Milton M. Pressley University of New Orleans www.bookfiesta4u.blogspot.com 11-482
  2. 2. Kotler onMarketingSell value,not price. www.bookfiesta4u.blogspot.com 11-483
  3. 3. Chapter ObjectivesIn this chapter, we focus on threequestions: How should a price be set on a product or service for the first time? How should the price be adapted to meet varying circumstances and opportunities? When should the company initiate a price change, and how should it respond to a competitor’s price change? www.bookfiesta4u.blogspot.com 11-484
  4. 4. Figure 16.1: Nine Price-Quality Strategies www.bookfiesta4u.blogspot.com 11-485
  5. 5. Figure 16.2: Price Should Align with Value www.bookfiesta4u.blogspot.com 11-486
  6. 6. Setting the PriceStep 1: Selecting the pricing objective Survival Maximize current profits Maximize their market share Market- Market-penetration pricing Best when: Market is highly price-sensitive, and a low price price- stimulates market growth, Production and distribution costs fall within accumulated production experience, and Low price discourages actual and potential competition www.bookfiesta4u.blogspot.com 11-487
  7. 7. Many companies engage in “marketskimming,” offering new products atwhatever price the market will bear, thenover time decreasing the price in order togain the maximum profit from eachmarket segment. Can you think of anyproducts that wouldn’t fitthis pricing model?Why not? www.bookfiesta4u.blogspot.com 11-488
  8. 8. Maytag’s homepage presents its “corporate family of brands” www.bookfiesta4u.blogspot.com 11-489
  9. 9. Setting the PriceStep 2: Determining Demand Price sensitivity Total Cost of Ownership (TCO) www.bookfiesta4u.blogspot.com 11-490
  10. 10. Setting the PriceTom Nagle offers this list of factors associatedwith lower price sensitivity The product is more distinctive Buyers are less aware of substitutes Buyers cannot easily compare the quality of substitutes The expenditure is a smaller part of the buyer’s total income The expenditure is small compared to the total cost of the end product Part of the cost is borne by another party The product is used in conjunction with assets previously bought The product is assumed to have more quality, prestige, or exclusiveness Buyers cannot store the product www.bookfiesta4u.blogspot.com 11-491
  11. 11. Setting the PriceEstimating Demand CurvesPrice Elasticity of Demand Inelastic Elastic Price indifference band www.bookfiesta4u.blogspot.com 11-492
  12. 12. Setting the PriceStep 3: Estimating Cost Types of Cost and Levels of Production Fixed costs (overhead) Variable cost Total cost Average cost Accumulated Production Experience curve (Learning curve) www.bookfiesta4u.blogspot.com 11-493
  13. 13. Setting the Price Differentiated Marketing Offers Activity- Activity-based cost (ABC) accounting Target costingStep 4: Analyzing Competitors’Cost, Prices, and Offers www.bookfiesta4u.blogspot.com 11-494
  14. 14. Setting the PriceStep 5: Selecting a Pricing Method Markup Pricing Unit Cost = variable cost + (fixed cost/unit sales) Markup price Markup price= unit cost/ (1 – desired return on sales) Target- Target-Return Pricing Target- Target-return price = unit cost + (desired return X investment capital)/unit sales www.bookfiesta4u.blogspot.com 11-495
  15. 15. Setting the Price Break- Break-even volumeBreak-Break-even volume = fixed cost / (price – variable cost) Perceived- Perceived-Value Pricing Perceived value Price buyers Figure 16.8: Break-Even Chart for Determining Target-Return Price and Value buyers Break-Even Volume Loyal buyers Value-in- Value-in-use price www.bookfiesta4u.blogspot.com 11-496
  16. 16. Setting the PriceValue Pricing Everyday low pricing (EDLP) High- High-low pricingGoing-Going-Rate PricingAuction-Auction-Type Pricing English auctions (ascending bids) Dutch auctions (descending bids) Sealed- Sealed-bid auctionsGroup Pricing www.bookfiesta4u.blogspot.com 11-497
  17. 17. Table 16.1: Effect of Different Bids on Expected Profit Probability of GettingCompany’s Company’s Award with Bid Profit This Bid Expected (Assumed) Profit $ 9,500 $ 100 0.81 $ 81 10,000 600 0.36 216 10,500 1,100 0.09 99 11,000 1,600 0.01 16 www.bookfiesta4u.blogspot.com 11-498
  18. 18. volumebuy.com: group or pool pricing www.bookfiesta4u.blogspot.com 11-499
  19. 19. Some large entities, both public and private,currently bid online for many products and services.Do you think there will be a market for consumers tobid on electrical power, like major corporateelectricity users do? What about oilfor heating? Can you think of anyother products or services with apotential online auctionmarket for home users? www.bookfiesta4u.blogspot.com 11-500
  20. 20. Setting the PriceStep 6: Selecting the Final Price Psychological Pricing Reference price Gain-and-Risk- Gain-and-Risk-Sharing Pricing Influence of the Other Marketing Elements Brands with average relative quality but high relative advertising budgets charged premium prices Brands with high relative quality and high relative advertising budgets obtained the highest prices The positive relationship between high advertising budgets and high prices held most strongly in the later stages of the product life cycle for market leaders www.bookfiesta4u.blogspot.com 11-501
  21. 21. Setting the Price Brands with average relative quality but high relative advertising budgets charged premium prices Brands with high relative quality and high relative advertising budgets obtained the highest prices The positive relationship between high advertising budgets and high prices held most strongly in the later stages of the product life cycle for market leadersCompany Pricing PoliciesImpact of Price on Other Parties www.bookfiesta4u.blogspot.com 11-502
  22. 22. Adapting the PriceGeographical Pricing (Cash,Countertrade, Barter) Countertrade Barter Compensation deal Buyback arrangement Offset Price Discounts and Allowances www.bookfiesta4u.blogspot.com 11-503
  23. 23. Table 16.2: Price Discounts and AllowancesCash Discount: A price reduction to buyers who pay bills promptly. A typical example is “2/10, net 30,” which means that payment is due within 30 days and that the buyer can deduct 2 percent by paying the bill within 10 days.Quantity Discount: A price reduction to those who buy large volumes. A typical example is “$10 per unit for less than 100 units; $9 per unit for 100 or more units.” Quantity discounts must be offered equally to all customers and must not exceed the cost savings to the seller. They can be offered on each order placed or on the number of units ordered over a given period. See text for complete table www.bookfiesta4u.blogspot.com 11-504
  24. 24. Adapting the PricePromotional Pricing Loss- Loss-leader pricing Special- Special-event pricing Cash rebates Low- Low-interest financing Longer payment terms Warranties and service contracts Psychological discounting www.bookfiesta4u.blogspot.com 11-505
  25. 25. Adapting the PriceDiscriminatory Pricing Customer segment pricing Product- Product-form pricing Image pricing Channel pricing Location pricing Time pricing Yield pricing www.bookfiesta4u.blogspot.com 11-506
  26. 26. Adapting the PriceProduct-Product-mix pricing Product- Product-Line Pricing Optional- Optional-Feature Pricing Captive- Captive-Product Pricing Captive products Two- Two-Part Pricing By-Product Pricing By- Product- Product-Bundling Pricing Pure bundling Mixed bundling www.bookfiesta4u.blogspot.com 11-507
  27. 27. personify.com provides software that helps Web merchants find target customers www.bookfiesta4u.blogspot.com 11-508
  28. 28. Initiating and Responding to Price Changes Initiating Price Cuts Drive to dominate the market through lower costs Low quality trap Fragile-market- Fragile-market-share trap Shallow- Shallow-pockets trap www.bookfiesta4u.blogspot.com 11-509
  29. 29. Table 16.3: Marketing-Mix AlternativesStrategic Options Reasoning Consequences1. Maintain price and Firm has higher Smaller market share. perceived quality. customer loyalty. It is Lowered profitability. Engage in selective willing to lose poorer customer pruning. customers to competitors.2. Raise price and Raise price to cover Smaller market share. perceived quality. rising costs. Improve Maintained quality to justify higher profitability. prices.3. Maintain price and It is cheaper to Smaller market share. raise perceived maintain price and Short- Short-term decline in quality. raise perceived quality. profitability. Long-term Long- increase in profitability. See text for complete table www.bookfiesta4u.blogspot.com 11-510
  30. 30. Initiating and Responding to Price Changes Table 16.4: Profits Before and After a Price Increase Before AfterPrice $ 10 $10.10 (a 1 percent price increase)Units sold 100 100Revenue $1000 $1010Costs -970 -970Profit $ 30 $ 40 (a 33 1/3 percent profit increase) www.bookfiesta4u.blogspot.com 11-511
  31. 31. Initiating and Responding to Price Changes Initiating Price Increases Cost inflation Anticipatory pricing Overdemand Delayed quotation pricing Escalator clauses Unbundling Reduction of discounts www.bookfiesta4u.blogspot.com 11-512
  32. 32. Initiating and Responding to Price ChangesPossible responses to higher costs or overhead withoutraising prices include: Shrinking the amount of product instead of raising the price Substituting less expensive materials or ingredients Reducing or removing product features Removing or reducing product services, such as installation or free delivery Using less expensive packaging material or larger package sizes Reducing the number of sizes and models offered Creating new economy brands www.bookfiesta4u.blogspot.com 11-513
  33. 33. Initiating and Responding to Price Changes Reactions to Price Changes Customer Reactions Competitor Reactions Responding to Competitors’ Price Changes Maintain price Maintain price and add value Reduce price Increase price and improve quality Launch a low-price fighter line low- www.bookfiesta4u.blogspot.com 11-514

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