Chapter 10

CHAPTER 10 DISCUSSION QUESTIONS 1) State & summarize the 3 forces of pricing. 2) Explain what customized or dynamic pricing is. 3) Explain the 3 objectives for establishing a new product's price. 4) Explain the 3 basic strategies for establishing a new product's price.

3 FORCES OF PRICING

1) PRICE CONVEYS IMAGE -CUSTOMERS LOOK AT PRICES TO DETERMINE WHAT TYPE OF BUSINESS THEY ARE DEALING WITH. -HIGH PRICES CONVEY: 1) QUALITY 2) PRESTIGE 3) UNIQUENESS -ONLY 15-35% OF CUSTOMERS CONSIDER PRICE TO BE THE CHIEF CRITERION WHEN SELECTING A PRODUCT/SERVICE. -CUSTOMERS ARE WILLING TO PAY FOR: 1) EXTRA VALUE 2) CONVENIENCE 3) SERVICE 4) QUALITY

A WELL CHOSEN PRICE SHOULD DO 3 THINGS 1) ACHIEVE THE FINANCIAL GOALS OF THE COMPANY. -WILL THE PRICE LEAD TO PROFITABILITY? 2) FIT THE REALITIES OF THE MARKETPLACE. -WILL CUSTOMERS BY AT THAT PRICE? 3) SUPPORT A PRODUCT’S POSITIONING. -IS THE PRICE CONSISTENT WITH THE BRAND?

2) COMPETITION & PRICING
TWO FACTORS WHEN TAKING COMPETITION INTO ACCOUNT FOR A PRICING STRATEGY
THE LOCATION OF THE COMPETITORS.
THE NATURE OF THE COMPETING GOODS & SERVICES.

3) FOCUS ON VALUE -THE “RIGHT” PRICE FOR A PRODUCT/SERVICE DEPENDS ON 1 FACTOR: -THE VALUE THAT IT PROVIDES FOR A CUSTOMER. -2 ASPECTS OF VALUE: 1) OBJECTIVE VALUE -THE PRICE CUSTOMERS WOULD BE WILLING TO PAY IF THEY UNERSTOOD PERFECTLY THE BENEFITS THAT A PRODUCT/SERVICE DELIVERS FOR THEM. 2) PERCEIVED VALUE -THE CUSTOMER’S OPINION OF A PRODUCT’S/SERVICE’S VALUE TO HIM/HER COMPARED TO PRICE.

INTRODUCING A NEW PRODUCT THE 3 OBJECTIVES THAT SHOULD BE SATISFIED WHEN PRICING ANY NEW PRODUCT.

1) GETTING THE PRODUCT ACCEPTED -NO MATTER HOW UNUSUAL A PRODUCT IS, ITS PRICE MUST BE ACCEPTABLE TO A COMPANY’S POTENTIAL CUSTOMERS. -THE ACCEPTABLE PRICE RANGE FOR A NEW PRODUCT DEPENDS ON THE PRODUCT’S POSITION. 1) REVOLUTIONARY PRODUCTS -PRODUCTS ARE SO NEW & UNIQUE THAT THEY TRANSFORM EXISTING MARKETS. THE PRICE RANGE TENDS TO BE WIDE. 2) EVOLUTIONARY PRODUCTS -PRODUCTS THAT OFFER UPGRADES & ENHANCEMENTS TO EXISTING PRODUCTS. PRICE RANGE IS NOT AS WIDE AS REVOLUTIONARY PRODUCTS. 3) ME-TOO PRODUCTS -PRODUCTS THAT OFFER THE SAME BASIC FEATURES AS EXISTING PRODUCTS ON THE MARKET. PRICE RANGE IS NARROW.

REVOLUTIONARY PRODUCTS

EVOLUTIONARY PRODUCTS

ME-TOO PRODUCTS

2) MAINTAINING MARKET SHARE AS COMPETITION GROWS -AS COMPETITORS ENTER THE MARKET, THE COMPANY MUST WORK TO EXPAND OR AT LEAST MAINTAIN ITS MAKET SHARE. -CONTINUOUSLY REAPPRAISING THE PRODUCT’S PRICE HELPS TO RETAIN A SATISFACTORY MARKET SHARE. 3) EARNING A PROFIT -MUST ESTABLISH PRICE FOR A PRODUCT HIGHER THAN ITS COST. -CANNOT UNDERPRICE: MUCH EASIER TO LOWER A PRICE THAN INCREASE ONCE THE PRODUCT IS ON THE MARKET.

3 BASIC STRATEGIES FOR ESTABLISHING A NEW PRODUCT’S PRICE

1) MARKET PENETRATION -TO GAIN QUICK ACCEPTANCE & EXTENSIVE DISTRIBUTION IN THE MASS MARKET, COMPANIES SHOULD CONSIDER INTRODUCING THE PRODUCT AT A LOW PRICE. 2) SKIMMING -A COMPANY USES A HIGHER-THAN-NORMAL PRICE IN AN EFFORT TO QUICKLY RECOVER THE INITIAL DEVELOPMENTAL & PROMOTIONAL COSTS OF THE PRODUCT. 3) SLIDING DOWN THE DEMAND CURVE -A COMPANY INTRODUCES THE PRODUCT AT A HIGH PRICE, THEN LOWERS THE PRICE DUE TO TECHNOLOGICAL ADVANCES LOWERING ITS COSTS BEFORE ITS COMPETITION CAN.

Chapter 10

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