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DEVELOPING PRICINGSTRATEGIES ANDPROGRAMS        MARKMA       Rhea G. Jardin       May 11, 2012   www.donnasia.blogspot.com
Outline1. 6 Steps in Setting the Price2. 4 Price-adaptation Strategies             www.donnasia.blogspot.com
What is Price?Price is :- the one element of the marketing mix that   produces revenue-   the amount paid for some goods o...
Concept 1:         6 Steps in Setting the Price Selecting the             Determining                    Estimatingpricing...
Concept 1:                   1. Selecting the pricing objective         Selecting the        pricing objective            ...
Concept 1:         2. Determining Demand Selecting the                 Determiningpricing objective                demand ...
Concept 1:         3. Estimating costs Selecting the            Determining                        Estimatingpricing objec...
Concept 1:         4. Analyze competitors’ costs, prices and         offers Selecting the         Determining        Estim...
Concept 1:         5. Selecting price method Selecting the                                      Determining               ...
Concept 1:                 6. Selecting final price     Selecting the                         Determining                 ...
Concept 1:         Selecting the                      6 Steps in Setting the Price                        Determining     ...
Concept 2:4 Price-adaptation strategies    1. Geographical pricing    2. Price discounts and       allowances    3. Promot...
Concept 2:   1. Geographical pricing      Barter                         Compensation deal Direct exchange of goods       ...
Concept 2:    2. Price discounts and allowances Cash discount                    Quantity discount  Discounts given to cas...
Concept 2:       3. Promotional pricingSpecial-event pricing                               Longer payment                 ...
Concept 2:       4. Differentiated pricingPrice discrimination   - selling a product at two or more pricesCustomer-segment...
Concept 2:      4. Differentiated pricingChannel pricing  - a product is priced depending on where it was purchase (fine  ...
DEVELOPING PRICINGSTRATEGIES ANDPROGRAMS        MARKMA       Rhea G. Jardin       May 11, 2012   www.donnasia.blogspot.com
DEVELOPING PRICING  STRATEGIES AND    PROGRAMS         Shelle Caiga        MBA Standard        May 11, 2012       www.donn...
Outline: Developing Pricing  Strategies and ProgramsI. Consumer Psychology and PricingII. Steps in Setting PriceIII. Learn...
How do consumers process &     evaluate prices?      process                    prices     evaluate     www.donnasia.blogs...
CONSUMER PSYCHOLOGY     and PRICING                  REFERENCE PRICES                  PRICE-QUALITY INFERENCES           ...
Definition of Terms:CONSUMER PSYCHOLOGY: providesopportunities to examine issues such as what factors are mostimportant…  ...
REFERENCE PRICES…  is a strategy in which a product is sold at a price justbelow its main competing brand.  is one compone...
PRICE CUESWhen to use… Customers purchase item infrequently Customers are new Product designs vary over time Prices vary s...
How should a company set prices    for products or services?STEPS:   1) Select the PRICE OBJECTIVE       2) Determine DEMA...
I. SELECT THE PRICE OBJECTIVE                     Survival                     Maximum current profit                   ...
II. DETERMINE DEMAND Price sensitivity Estimating demand curves Price elasticity of demand                  www.donnasi...
III. ESTIMATE COSTS                  Types of Costs                  Accumulated Production                  Activity –...
IV. ANALYZE COMPETITOR PRICE         MIX Identify nearest pricecompetitors Take competitor’s features andprices into acc...
V. SELECT PRICING METHOD                            Mark up Pricing                            Target-return pricing    ...
VI. SELECT THE FINAL PRICE Impact of other marketingactivities Company pricing policies Gain-and-risk sharing pricing ...
PRICE-ADAPTATION STRATEGIES     GEOGRAPHICAL PRICING    DISCOUNTS / ALLOWANCES     PROMOTIONAL PRICING    DIFFERENTIATED P...
PRICE-ADAPTATION STRATEGIES               COUNTERTRADE Barter Compensation deal Buyback arrangement Offset            ...
PRICE-ADAPTATION STRATEGIES         DISCOUNTS / ALLOWANCES Cash Discount             Seasonal Discount Quantity Discoun...
PROMOTIONAL PRICING TACTICS Loss-leader pricing              Longer payment terms Special-event pricing            War...
DIFFERENTIATED PRICING &      PRICE DISCRIMINATION Customer-segment pricing                 Channel pricing Product-for...
INCREASING PRICES Delayed quotation pricing Escalator clauses Unbundling Reduction of discounts               www.donn...
BRAND LEADER RESPONSES TO         COMPETITIVE PRICE CUTS Maintain price Maintain price & add value Reduce price Increa...
DEVELOPING PRICING  STRATEGIES AND    PROGRAMS         Shelle Caiga        MBA Standard        May 11, 2012       www.donn...
Chapter 14Developing PricingStrategies and Programs               Donna Sia              May 11, 2012         www.donnasia...
OUTLINE:When setting effective pricing policy a company  1. Follows six pricing procedures  2. Selects a pricing structure...
Price is the only element inthe marketing mix thatproduces revenue;the others produce cost.             www.donnasia.blogs...
Consumers use common pricereferences. Fair price                     Typical PriceLower-bound                    Last Pric...
They may also refer to:Competitor’s Price             Usual Discounted Price             Expected Future Price            ...
Companies follow 6 steps    when setting prices.1 Select the price objective      2 Determine demand            3 Estimate...
In selecting price objectives,      companies must look at                  Maximum                    Maximum    Survival...
Demand can be determined by examining: Price            Estimating              Price ElasticitySensitivity        Demand ...
Changes in price affect         consumer demand:Source: Marketing Management, Kotler and Keller, 13th ed.                 ...
Customers are likely to be less     sensitive to price changes when:product is more distinctive       less aware of substi...
Customers are likely to be less      sensitive to price changes when:small compared to the total cost      Part of the cos...
Customers are likely to be less    sensitive to price changes when:assumed to have high quality        cannot store the pr...
Costs can either be fixed or    variable                                         processFixed Cost    Variable Cost       ...
The sum of variable and fixedcost for any given level ofproduction is the total cost      www.donnasia.blogspot.com
As production accumulates         average cost decreasesSource: Marketing Management, Kotler and Keller, 13th ed.         ...
To arrive at target cost, firstdetermine target             given product’s appealprice and desired            and competi...
Different pricing methods canbe used in varying situations         Markup pricing      Target-return pricing     Perceived...
Markup Pricing is just adding       a standard mark-up to the       product’s cost.Variable cost per unit $10.00Fixed Cost...
Target-return pricing is used      by companies who need to      make a fair return on      investmentDesired ROI = 20% or...
Break-even analysis is used to           determine target return price           and break-even volumeSource: Marketing Ma...
Perceived Value Pricing$ 90,000 tractor’s price = competitor’s price$ 7,000 superior durability$ 6,000 superior reliabilit...
The internet and Auction type      pricing:                                                    English auctions           ...
Price Adaptation StrategyGeographical Pricing           www.donnasia.blogspot.com
Discounts and AllowancesPrompt payment discount                                              Seasonal Discount            ...
Promotional Pricing                                     Special-event pricingLoss-leader Pricing                 Low-inter...
Profits Before and After a           Price IncreaseSource: Marketing Management, Kotler and Keller, 13th ed.              ...
Respond to Low-Cost rival by:1. Maintaining price2. Maintaining price and adding value3. Reducing price4. Increasing price...
In summary:Price is the only element in the marketing                                                                     ...
Chapter 14Developing PricingStrategies and Programs               Donna Sia              May 11, 2012         www.donnasia...
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Kotler Chapter 14 Developing Pricing Strategies and Programs

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  • Fixed Cost or overhead cost are costs that do not vary with production level or sales revenue.Variable cost vary directly with level of production.
  • Total cost consist of the sum of the fixed and variable costs for any given level of production.
  • It refers to the gain a company experiences in producing a product over a period of time. Workers learn shortcuts, materials flow more smoothly, and procurement costs fall. The result is that average cost falls with accumulated production experience. This decline in the average cost with accumulated production experience is called the experience curve or learning curve. Average cost is the cost per unit at a level of production given total costhttp://design-marketing-dictionary.blogspot.com/2009/09/accumulated-production.html
  • Also used for season items, specialty items, slower-moving items, items with high storage and handling cost, demand-inelastic (drugs)
  • The firm determines the price that would yield its target rate of return on investment (ROI).Example 15 % to 20% ROI-does not consider other scenarios- if item will not sell at 50,000-manufacturers should consider different prices and their impact on sales volume-Find ways to decrease fixed costs and variable costs to lower break even volume
  • There is always a segment of buyers who care only about the priceDeliver more value than the competitor and demonstrate this to prospective buyers
  • Transcript of "Kotler Chapter 14 Developing Pricing Strategies and Programs"

    1. 1. DEVELOPING PRICINGSTRATEGIES ANDPROGRAMS MARKMA Rhea G. Jardin May 11, 2012 www.donnasia.blogspot.com
    2. 2. Outline1. 6 Steps in Setting the Price2. 4 Price-adaptation Strategies www.donnasia.blogspot.com
    3. 3. What is Price?Price is :- the one element of the marketing mix that produces revenue- the amount paid for some goods or services www.donnasia.blogspot.com
    4. 4. Concept 1: 6 Steps in Setting the Price Selecting the Determining Estimatingpricing objective demand costs Price objective Demand CostsSelecting the Selecting Analyze competitors’ pricing method costs, prices, and offers final price Final Pricing price method Competitors www.donnasia.blogspot.com
    5. 5. Concept 1: 1. Selecting the pricing objective Selecting the pricing objective Price objectiveSurvival (B/E) Maximize profit Maximize market share Product leadership Maximize market skimming www.donnasia.blogspot.com
    6. 6. Concept 1: 2. Determining Demand Selecting the Determiningpricing objective demand Price objective Demand Surveys Demand elasticity Statistical analysis Price experiments www.donnasia.blogspot.com
    7. 7. Concept 1: 3. Estimating costs Selecting the Determining Estimatingpricing objective demand costs Price objective Demand Costs Learning curve Fixed and Variable Cost per unit of production www.donnasia.blogspot.com
    8. 8. Concept 1: 4. Analyze competitors’ costs, prices and offers Selecting the Determining Estimatingpricing objective demand costs Price objective Demand Costs Analyze competitors’ costs, prices, and offers Competitors Evaluate the competitors’ price and product value www.donnasia.blogspot.com
    9. 9. Concept 1: 5. Selecting price method Selecting the Determining Estimatingpricing objective demand costs Price objective Demand Costs Selecting Analyze competitors’ pricing method costs, prices, and offers Pricing method Competitors Price Perceived markup value Value pricing Target Going-rate ROI pricing Auction- Break- type pricing even point www.donnasia.blogspot.com
    10. 10. Concept 1: 6. Selecting final price Selecting the Determining Estimating pricing objective demand costs Price objective Demand Costs Selecting the Selecting Analyze competitors’ costs, pricing method prices, and offers final price Final Pricing price method Competitors Gain & risk sharing High advertising Pricing policiesPrice fixing www.donnasia.blogspot.com
    11. 11. Concept 1: Selecting the 6 Steps in Setting the Price Determining Estimating pricing objective demand costs Price objective Demand Costs Surveys Learning Demand curveSurvival (B/E) Maximize profit elasticity Fixed and Variable Maximize market share Cost per Statistical unit of analysis Price Product experiments production leadership Maximize market skimming Selecting the Selecting Analyze competitors’ costs, pricing method prices, and offers final price Final Pricing price method Competitors Price Perceived markup value Evaluate the Gain & risk competitors’ sharing Value High pricing price and advertising product value Target Going-rate ROI pricing Pricing policies Auction- Break- Price fixing type pricing even point www.donnasia.blogspot.com
    12. 12. Concept 2:4 Price-adaptation strategies 1. Geographical pricing 2. Price discounts and allowances 3. Promotional pricing 4. Differentiated pricing www.donnasia.blogspot.com
    13. 13. Concept 2: 1. Geographical pricing Barter Compensation deal Direct exchange of goods Payment in products and cashBuyback arrangement Offset Payment in form of products manufactured by the supplied Receives payment in cash but agrees to equipment and cash spend some of the money in the products of that country www.donnasia.blogspot.com
    14. 14. Concept 2: 2. Price discounts and allowances Cash discount Quantity discount Discounts given to cash, Discounts given to those early or prompt payments who buy large volumes Seasonal discount Discounts given to products or services that are out of seasonTrade discount Allowances Discounts given by Discounts given to gainmanufacturers to resellers reseller participation in special programs www.donnasia.blogspot.com
    15. 15. Concept 2: 3. Promotional pricingSpecial-event pricing Longer payment terms Low-interest financing Cash rebates Warranties and service contracts www.donnasia.blogspot.com
    16. 16. Concept 2: 4. Differentiated pricingPrice discrimination - selling a product at two or more pricesCustomer-segment pricing - different customer groups pay different prices for the same product or serviceProduct-form pricing - different versions of the product are priced differently, but not proportionately to their costsImage pricing - the same product are priced at two different levels based on image differences www.donnasia.blogspot.com
    17. 17. Concept 2: 4. Differentiated pricingChannel pricing - a product is priced depending on where it was purchase (fine restaurant, fast-food chain, or vending machine)Location pricing - same product is priced differently at different locations even though the cost is the sameTime pricing - prices are varied by season, day, or hour (weekend vs weekdays, “early bird” customers) www.donnasia.blogspot.com
    18. 18. DEVELOPING PRICINGSTRATEGIES ANDPROGRAMS MARKMA Rhea G. Jardin May 11, 2012 www.donnasia.blogspot.com
    19. 19. DEVELOPING PRICING STRATEGIES AND PROGRAMS Shelle Caiga MBA Standard May 11, 2012 www.donnasia.blogspot.com
    20. 20. Outline: Developing Pricing Strategies and ProgramsI. Consumer Psychology and PricingII. Steps in Setting PriceIII. Learning what Price Adaptation is all about.IV. Promotional Pricing TacticsV. Differentiated PricingVI. Increasing PricesVII. Brand Leader Responses To Competitive Price Cuts www.donnasia.blogspot.com
    21. 21. How do consumers process & evaluate prices? process prices evaluate www.donnasia.blogspot.com
    22. 22. CONSUMER PSYCHOLOGY and PRICING REFERENCE PRICES PRICE-QUALITY INFERENCES PRICE ENDINGS PRICE CUES www.donnasia.blogspot.com
    23. 23. Definition of Terms:CONSUMER PSYCHOLOGY: providesopportunities to examine issues such as what factors are mostimportant… when people decide to purchase a particular item how customers determine the value of a service and whether or not television & magazine advertisements can convince a reluctant consumer to try a new product for the 1st time.PRICING: is the process of determining what a company will receive in exchange for its products www.donnasia.blogspot.com
    24. 24. REFERENCE PRICES… is a strategy in which a product is sold at a price justbelow its main competing brand. is one component of psychological pricing – sellersconsider the psychology of prices & not simply theeconomics. are prices that buyers carry in their minds and refer towhen looking at a given product. www.donnasia.blogspot.com
    25. 25. PRICE CUESWhen to use… Customers purchase item infrequently Customers are new Product designs vary over time Prices vary seasonally Quality or sizes vary across stores www.donnasia.blogspot.com
    26. 26. How should a company set prices for products or services?STEPS: 1) Select the PRICE OBJECTIVE 2) Determine DEMAND 3) Estimate COSTS 4) Analyze competitor PRICE MIX 5) Select PRICING METHOD 6) Select FINAL PRICE www.donnasia.blogspot.com
    27. 27. I. SELECT THE PRICE OBJECTIVE  Survival  Maximum current profit  Maximum market share  Maximum market skimming  Product – quality leadership www.donnasia.blogspot.com
    28. 28. II. DETERMINE DEMAND Price sensitivity Estimating demand curves Price elasticity of demand www.donnasia.blogspot.com
    29. 29. III. ESTIMATE COSTS  Types of Costs  Accumulated Production  Activity – based Cost Accounting  Target Costing www.donnasia.blogspot.com
    30. 30. IV. ANALYZE COMPETITOR PRICE MIX Identify nearest pricecompetitors Take competitor’s features andprices into account Make decision to chargemore, the same or less thancompetitors Monitor competitors’ reaction toyour pricing strategy www.donnasia.blogspot.com
    31. 31. V. SELECT PRICING METHOD  Mark up Pricing  Target-return pricing  Perceived-value pricing  Value pricing  Going-rate pricing  Auction-type pricing www.donnasia.blogspot.com
    32. 32. VI. SELECT THE FINAL PRICE Impact of other marketingactivities Company pricing policies Gain-and-risk sharing pricing Impact of price on other parties www.donnasia.blogspot.com
    33. 33. PRICE-ADAPTATION STRATEGIES GEOGRAPHICAL PRICING DISCOUNTS / ALLOWANCES PROMOTIONAL PRICING DIFFERENTIATED PRICING www.donnasia.blogspot.com
    34. 34. PRICE-ADAPTATION STRATEGIES COUNTERTRADE Barter Compensation deal Buyback arrangement Offset www.donnasia.blogspot.com
    35. 35. PRICE-ADAPTATION STRATEGIES DISCOUNTS / ALLOWANCES Cash Discount  Seasonal Discount Quantity Discount  Allowance Functional Discount www.donnasia.blogspot.com
    36. 36. PROMOTIONAL PRICING TACTICS Loss-leader pricing  Longer payment terms Special-event pricing  Warranties & service contracts Low-interest financing  Cash Rebates  Psychological discounting www.donnasia.blogspot.com
    37. 37. DIFFERENTIATED PRICING & PRICE DISCRIMINATION Customer-segment pricing  Channel pricing Product-form pricing  Location pricing Image pricing  Time pricing  Yield pricing www.donnasia.blogspot.com
    38. 38. INCREASING PRICES Delayed quotation pricing Escalator clauses Unbundling Reduction of discounts www.donnasia.blogspot.com
    39. 39. BRAND LEADER RESPONSES TO COMPETITIVE PRICE CUTS Maintain price Maintain price & add value Reduce price Increase price & improve qualityLaunch a low-price fighter line www.donnasia.blogspot.com
    40. 40. DEVELOPING PRICING STRATEGIES AND PROGRAMS Shelle Caiga MBA Standard May 11, 2012 www.donnasia.blogspot.com
    41. 41. Chapter 14Developing PricingStrategies and Programs Donna Sia May 11, 2012 www.donnasia.blogspot.com
    42. 42. OUTLINE:When setting effective pricing policy a company 1. Follows six pricing procedures 2. Selects a pricing structure that reflects various situations 3. Chooses what price adaptation strategy to use 4. Examine the effect of price changes 5. Responds to competitors price challenge www.donnasia.blogspot.com
    43. 43. Price is the only element inthe marketing mix thatproduces revenue;the others produce cost. www.donnasia.blogspot.com
    44. 44. Consumers use common pricereferences. Fair price Typical PriceLower-bound Last Price Paid www.donnasia.blogspot.com
    45. 45. They may also refer to:Competitor’s Price Usual Discounted Price Expected Future Price www.donnasia.blogspot.com
    46. 46. Companies follow 6 steps when setting prices.1 Select the price objective 2 Determine demand 3 Estimate costs 4 Analyze competitor price mix 5 Select pricing method 6 Select final price www.donnasia.blogspot.com
    47. 47. In selecting price objectives, companies must look at Maximum Maximum Survival current profit market shareMaximum market skimming Product-quality leadership www.donnasia.blogspot.com
    48. 48. Demand can be determined by examining: Price Estimating Price ElasticitySensitivity Demand of Demand Curves www.donnasia.blogspot.com
    49. 49. Changes in price affect consumer demand:Source: Marketing Management, Kotler and Keller, 13th ed. www.donnasia.blogspot.com
    50. 50. Customers are likely to be less sensitive to price changes when:product is more distinctive less aware of substitutes expenditure is a cannot easily compare the smaller part of quality of substitutes buyer’s total income www.donnasia.blogspot.com
    51. 51. Customers are likely to be less sensitive to price changes when:small compared to the total cost Part of the cost is paidof the end product by another party used with previously purchased assets www.donnasia.blogspot.com
    52. 52. Customers are likely to be less sensitive to price changes when:assumed to have high quality cannot store the productand prestige www.donnasia.blogspot.com
    53. 53. Costs can either be fixed or variable processFixed Cost Variable Cost output www.donnasia.blogspot.com
    54. 54. The sum of variable and fixedcost for any given level ofproduction is the total cost www.donnasia.blogspot.com
    55. 55. As production accumulates average cost decreasesSource: Marketing Management, Kotler and Keller, 13th ed. www.donnasia.blogspot.com
    56. 56. To arrive at target cost, firstdetermine target given product’s appealprice and desired and competitor’s pricefunction Then: Target Selling Price = $ 9.90 Less Profit Margin = $ 3.40 Target Cost = $ P 6.50 www.donnasia.blogspot.com
    57. 57. Different pricing methods canbe used in varying situations Markup pricing Target-return pricing Perceived-value pricing Value pricing Going-rate pricing Auction-type pricing www.donnasia.blogspot.com
    58. 58. Markup Pricing is just adding a standard mark-up to the product’s cost.Variable cost per unit $10.00Fixed Cost $ 300,000.00Expected Unit Sales 50,000 unitsUnit cost= variable cost + fixed cost unit sales = $10.00+ $ 300,000.00 50,000 = $16.00Desired Mark Up= 20%Selling Price= Unit Cost = $16.00 = $20 (1- desired return) (1-0.20) www.donnasia.blogspot.com
    59. 59. Target-return pricing is used by companies who need to make a fair return on investmentDesired ROI = 20% or € 200,000Target-return on price= unit cost + desired return x investment capital unit sales= $16.00 + 0.20 x $1,000,000.00 = $20.00 50,000 www.donnasia.blogspot.com
    60. 60. Break-even analysis is used to determine target return price and break-even volumeSource: Marketing Management, Kotler and Keller, 13th ed. www.donnasia.blogspot.com
    61. 61. Perceived Value Pricing$ 90,000 tractor’s price = competitor’s price$ 7,000 superior durability$ 6,000 superior reliability$ 5,000 superior service$ 2,000 longer warranty$ 110,000 superior value- 10,000 discount$ 100,000 final price www.donnasia.blogspot.com
    62. 62. The internet and Auction type pricing: English auctions Dutch auctions Sealed-bid auctionsSource: Marketing Management, Kotler and Keller, 13th ed. www.donnasia.blogspot.com
    63. 63. Price Adaptation StrategyGeographical Pricing www.donnasia.blogspot.com
    64. 64. Discounts and AllowancesPrompt payment discount Seasonal Discount Volume discount www.donnasia.blogspot.com
    65. 65. Promotional Pricing Special-event pricingLoss-leader Pricing Low-interest financing www.donnasia.blogspot.com
    66. 66. Profits Before and After a Price IncreaseSource: Marketing Management, Kotler and Keller, 13th ed. www.donnasia.blogspot.com
    67. 67. Respond to Low-Cost rival by:1. Maintaining price2. Maintaining price and adding value3. Reducing price4. Increasing price and improving quality5. Launching a low-price fighter line www.donnasia.blogspot.com
    68. 68. In summary:Price is the only element in the marketing Competitor’s can also offermix that produces revenue attractive prices Survival and ProfitPrice objectives Maximize market share Products Cost (Variable/Fixed) Deliver value to customers consumer psychology Sensitivity to price Durability, reliability, excellent service changes www.donnasia.blogspot.com
    69. 69. Chapter 14Developing PricingStrategies and Programs Donna Sia May 11, 2012 www.donnasia.blogspot.com
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