MARKETING MANAGEMENT Developing Pricing Strategies and Programs
Factors Affecting Price Decisions Internal Factors External Factors Nature of the market Marketing Objectives Pricing and demand Marketing Mix Strategy Costs Decisions Competition Other environmental Organizational factors (economy, considerations resellers, government)
Internal Factors Affecting PricingDecisions: Marketing Objectives Survival Low Prices to Cover Variable Costs and Some Fixed Costs to Stay in Business. Current Profit Maximization Choose the Price that Produces the Marketing Maximum Current Profit, Etc. Objectives Market Share Leadership Low as Possible Prices to Become the Market Share Leader. Product Quality Leadership High Prices to Cover Higher Performance Quality and R & D.
Internal Factors Affecting PricingDecisions: Marketing Mix Product Design Non price Price Distribution Positions Promotion
External FactorsAffecting Pricing Decisions Market and Demand Competitors’ Costs, Prices, and Offers Other External Factors Economic Conditions Reseller Needs Government Actions Social Concerns
Market and Demand FactorsAffecting Pricing Decisions Pricing in Different Types of Markets Pure CompetitionMany Buyers and Sellers Pure Monopoly Who Have Little Single Seller Effect on the Price Monopolistic Oligopolistic Competition Competition Many Buyers and Sellers Few Sellers Who Are Who Trade Over a Sensitive to Each Other’s Range of Prices Pricing/ Marketing Strategies
External FactorsGovernment Regulations
Major Considerations in Setting Price
Cost-Based Pricing Certainty About Costs Simplest Ethical Cost-Plus Factors Pricing Pricing is Pricing is an Situational Method Simplified Approach That Unexpected Adds aPrice Competition StandardIs Minimized Attitudes Markup to the Ignores Costof the of Current Others Demand & Product.Much Fairer to CompetitionBuyers & Sellers
Cost-Based Versus Value-Based Pricing Cost-Based Pricing Value-Based Pricing Product Customer Cost Value Price Price Value Cost Customers Product
Competition-Based Pricing Setting Prices Going-Rate Company Sets Prices Based on What Competitors Are Charging. ? Sealed-Bid ? Company Sets Prices Based on What They Think Competitors Will Charge.
New Product Pricing Strategies Market Skimming • Use Under These Conditions: Setting a High Price for a – Product’s Quality and New Product to “Skim” Image Must Support Its Maximum Revenues from Higher Price. the Target Market. – Costs Can’t be so High that They Cancel the Results in Fewer, But Advantage of Charging More Profitable Sales. More. – Competitors Shouldn’t be Able to Enter Market Easily and Undercut the High Price.
New Product Pricing Strategies• Use Under These Market Penetration Conditions: – Market Must be Highly Setting a Low Price for a Price-Sensitive so a Low New Product in Order to Price Produces More “Penetrate” the Market Market Growth. Quickly and Deeply. – Production/ Distribution Costs Must Fall as Sales Attract a Large Number of Volume Increases. Buyers and Win a Larger – Must Keep Out Market Share. Competition & Maintain Its Low Price Position or Benefits May Only be Temporary.
Product Mix-Pricing Strategies:Product Line Pricing • Involves setting price steps between various products in a product line based on: – Cost differences between products, – Customer evaluations of different features, and – competitors’ prices.
Product Mix- Pricing Strategies • Optional-Product – Pricing optional or accessory products sold with the main product. i.e camera bag. • Captive-Product – Pricing products that must be used with the main product. i.e. film.
Product Mix- Pricing Strategies • By-Product • Product-Bundling – Pricing low-value – Combining several by-products to get products and rid of them & make offering the bundle the main product’s at a reduced price. price more – i.e. theater season competitive. tickets. – i.e. sawdust,
Discount and Allowance Pricing A d ju s tin g B a s ic P r ic e to R e w a r d C u s to m e r s F o r C e rta in R e s p o n s e s C a s h D is c o u n t S e a s o n a l D is c o u n t Q u a n tity D is c o u n t T r a d e -In A llo w a n c e F u n c tio n a l D is c o u n t P r o m o t io n a l A ll o w a n c e
Psychological Pricing • Considers the psychology of prices and not simply the economics. • Customers use price less when they can judge quality of a product. • Price becomes an important Valu e $2 quality signal when 2. 00 Sale customers can’t judge $14 . 99 quality; price is used to say something about a product.
Promotional Pricing Loss Leaders Temporarily Pricing Products Below List Special-Event Pricing Price to Increase Short-Term Sales Cash Rebates Through: Low-Interest Financing Longer Warranties Free Merchandise Discounts