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Marketing chapter 10[1]
 

Marketing chapter 10[1]

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  • Note to Instructor <br /> Students often confuse value with low price. You might want to bring up a product that some of them will value even at a high price. You can bring up the latest iPhone product or a luxury car. Some students will feel that the price for these products is too high, however, others will see the value these products offer to the consumer. <br />
  • Note to Instructor <br /> In many cases good-value pricing includes less expensive items. The text gives some examples: <br /> Armani offers the less-expensive, more-casual Armani Exchange fashion line. <br /> Volkswagen recently reintroduced the Rabbit, an economical car with a base price under $16,000, because “The people want an entry-level price and top-level features.” <br />
  • Note to Instructor <br /> Real Marketing 10.1 shows how the Chinese products are flooding into the Arab world, winning customers with low prices while still providing acceptable quality. Chinese companies’ understanding of the culture, religion, and habits of the Arab world has allowed them to grow and expand quickly in the region. <br />
  • Note to Instructor <br /> This link is to steelonthenet.com that shows current prices for the raw materials used to make steel including coal, iron oar, natural gas, steel scrap, and electricity. This site tracks the prices over time so students can see how these change. <br />
  • Note to Instructor <br /> It is best to use an example like the one in the book: <br /> A company has built a plant to produce 1,000 calculators per day. Figure 10.3A shows the typical short‑run average cost curve (SRAC). It shows that the cost per calculator is high if the company’s factory produces only a few per day. But as production moves up to 1,000 calculators per day, average cost falls. This is because fixed costs are spread over more units, with each one bearing a smaller share of the fixed cost. The company can try to produce more than 1,000 calculators per day, but average costs will increase because the plant becomes inefficient. Workers have to wait for machines, the machines break down more often, and workers get in each other’s way. <br /> If the company believed it could sell 2,000 calculators a day, it should consider building a larger plant. The plant would use more efficient machinery and work arrangements. Also, the unit cost of producing 2,000 calculators per day would be lower than the unit cost of producing 1,000 units per day, as shown in the long‑run average cost (LRAC) curve (Figure 10.3B). In fact, a 3,000‑capacity plant would even be more efficient, according to Figure 10.3B. But a 4,000-daily production plant would be less efficient because of increasing diseconomies of scale—too many workers to manage, paperwork slowing things down, and so on. Figure 10.3B shows that a 3,000-daily production plant is the best size to build if demand is strong enough to support this level of production. <br />
  • Note to Instructor <br /> The book example continues as follows: <br /> Suppose the company runs a plant that produces 3,000 calculators per day. As the company gains experience in producing calculators, it learns how to do it better. Workers learn shortcuts and become more familiar with their equipment. With practice, the work becomes better organized, and the company finds better equipment and production processes. With higher volume, the company becomes more efficient and gains economies of scale. As a result, average cost tends to fall with accumulated production experience. This is shown in Figure 10.4. Thus, the average cost of producing the first 100,000 calculators is $10 per calculator. When the company has produced the first 200,000 calculators, the average cost has fallen to $9. After its accumulated production experience doubles again to 400,000, the average cost is $7. This drop in the average cost with accumulated production experience is called the experience curve (or the learning curve ). <br />
  • Note to Instructor <br /> Some marketers position their products on high prices, featuring high prices as part of their product’s appeal. Real Marketing 10.2 sheds light on Dubai’s luxurious real estate market specifically Palm Jumeirah. Palm Jumeirah is an island designed to look like a palm tree from above and consists of a collection of the most luxurious villas and apartments in the world. <br /> Dubai’s real-estate industry has marketed its products under the names of Formula One champions Michael Schumacher and Nikki Lauder, and golf stars Tiger Woods, Ernie Els, and Gary Player. To put its real-estate business on the world-elite level, Nakheel invited celebrities such as Brad Pitt and Angelina Jolie, the famous Hollywood couple, to the island. Moreover, world football stars, including David Beckham and 12 members of the England World Cup team are now owners of villas in Palm Jumeriah, driving attention in the UK media and attracting elite British buyers. <br />
  • Note to Instructor <br /> Discussion Question <br /> How has the Internet changed pricing competition? <br /> This link is to www.cheapflightsfinder.com, one of many Web sites that offers price comparisons. Ask them if they know of other sites where they can obtain low prices. <br />
  • Note to Instructor <br /> The demand curve sometimes slopes upward. Gibson Guitar Corporation once toyed with the idea of lowering its prices to compete more effectively with rivals such as Yamaha and Ibanez, which make cheaper guitars. To its surprise, Gibson found that its instruments didn’t sell as well at lower prices. “We had an inverse [pricedemand relationship],” noted Gibson’s chief executive. “The more we charged, the more product we sold.” <br />
  • Note to Instructor <br /> Factors that affect price elasticity of demand include: <br /> Unique product <br /> Quality <br /> Prestige <br /> Substitute products <br /> Cost relative to income <br />
  • Notes to instructor <br /> According to Dr Hashim Al Nuaimi, director of the Consumer Protection Department in the UAE, retailers are urged by the ministry to reduce prices and provide bargain offers. Moreover, the government organizes a committee during Ramadan that is responsible for price monitoring as well as inspection visits. This committee also collects feedback from customers in order to ensure that price regulations are implemented consistently across the country. 14 This system exists in many countries in the region, including Bahrain, where Prime Minister Shaikh Khalifa Bin Salman has ordered inspection teams to take action against stores that raise food prices during Ramadan. <br />
  • Note to Instructor <br /> The text gives an excellent example of Sharaf DG. It used penetration pricing to boost its success in the GCC market. <br />
  • Note to Instructor <br /> This Web link brings you to Masafi’s homepage. Masafi Juice offers some 15 different juice drinks in three sizes at prices ranging from underUS$0.50 to US$2.50. Masafi sells its 1 liter PET juice pack at US$1.37 and its 1 liter TETRA juice pack for US$2.20. Although the cost of the juice in both pack types is the same, the price difference is due to the added value of the TETRA packs. Masafi’s task is to establish perceptions of value of the two types of pack that support the price difference. <br />
  • Note to Instructor <br /> This Web link directs you to Zain mobile phone company; specifically to their “Picing Plan” page. This page presents the different pricing plans they offer, and here the students can directly see their two part pricing strategy (fixed fee plus a variable usage rate). <br />
  • Note to Instructor <br /> Discounts are either cash discount for paying promptly, quantity discount for buying in large volume, or functional (trade) discount for selling, storing, distribution, and record keeping. <br /> Allowances include trade-in allowance for turning in an old item when buying a new one and promotional allowance to reward dealers for participating in advertising or sales support programs. <br />
  • Note to Instructor <br /> The three types of segmented pricing are: <br /> Customer segment pricing is when different customers pay different prices for the same product or service. <br /> Product form segment pricing is when different versions of the product are priced differently but not according to differences in cost. <br /> Location pricing is when the product sold in different geographic areas is priced differently even though the cost is the same. <br /> Product-form pricing: Evian water in a 1 liter bottle might cost you 5 cents an ounce at your local supermarket, whereas the same water might cost US$2.28 an ounce when sold in 5 ounce aerosol cans as Evian Brumisateur Mineral Water Spray moisturizer. <br />
  • Note to Instructor <br /> This weblink refers to Middle East airlines MEA. The airline industry routinely sets prices hour-by-hour—even minute-by minute— depending on seat availability, demand, and competitor price changes. Thus, the price you pay for a given seat on a <br /> given flight might vary greatly depending not just on class of service, but also on when and where you buy the ticket. Ask the students to logon to the site and book a certain flight and see the differences among classes, times and dates. <br /> Discussion Question <br /> How have you benefited from price segmentation? <br /> Most likely they have had student discounts. Ask them why that is effective given the criteria above. <br />
  • Note to Instructor <br /> Discussion Question <br /> How well do you carry prices of coffee, pizza, and milk in your head? <br /> It might be interesting to collect the prices of items sold near or on campus including coffee, pizza, and sandwiches. Ask them how well they know these prices, have them write down the price of these items and then check themselves. You will often find that people do NOT know prices as well as they think they do. <br />
  • Note to Instructor <br /> Loss leaders are products sold below cost to attract customers in the hope they will buy other items at normal markups. <br /> Special event pricing is used to attract customers during certain seasons or periods. <br /> Cash rebates are given to consumers who buy products within a specified time. <br /> Low-interest financing, longer warrantees, and free maintenance lower the consumer’s “total price.” <br />
  • Note to Instructor <br /> As an Internet-based company, Souq.com is able to offer customers very flexible payment options. “It offers marketing, buying, selling, electronic payment and product pickup/delivery from one easy to use, completely secure location, enabling both individuals and businesses to sell their goods and services to millions of online users easily.This weblink directs you to their homepage. <br />

Marketing chapter 10[1] Marketing chapter 10[1] Presentation Transcript

  • Ch 10 -1 Copyright © 2011 Pearson Education
  • Principles of Marketing, Arab World Edition Philip Kotler, Gary Armstrong, Anwar Habib, Ahmed Tolba Presentation prepared by Annelie Moukaddem Baalbaki CHAPTER TEN Pricing Lecturer: Insert your name here Ch 10 -2 Copyright © 2011 Pearson Education
  • Chapter Learning Outcomes Topic Outline 10.1 What Is a Price? 10.2 Customer Perceptions of Value 10.3 Company and Product Costs 10.4 Other Internal and External Considerations Affecting Price Decisions 10.5 New Product Pricing strategies 10.6 Product Mix Pricing Strategies 10.7 Price-Adjustment Strategies 10.8 Price Changes Ch 10 -3 Copyright © 2011 Pearson Education
  • What Is a Price? Price • Price is the amount of money charged for a product or service. It is the sum of all the values that consumers give up in order to gain the benefits of having or using a product or service. • Price is the only element in the marketing mix that produces revenue; all other elements represent costs. Ch 10 -4 Copyright © 2011 Pearson Education
  • Factors to Consider When Setting Prices Ch 10 -5 Copyright © 2011 Pearson Education
  • Customer Perceptions of Value Customer oriented prices involves understanding how much value consumers place on the benefits they receive from the product and setting a price that captures that value. Ch 10 -6 Copyright © 2011 Pearson Education
  • Customer Perceptions of Value Value –Based Pricing Value-based pricing uses the buyers’ perceptions of value, not the sellers cost, as the key to pricing. Price is considered before the marketing program is set. • Value-based pricing is customer driven - Good-Value Pricing - Value-Added Pricing • Cost-based pricing is product driven Ch 10 -7 Copyright © 2011 Pearson Education
  • Customer Perceptions of Value Ch 10 -8 Copyright © 2011 Pearson Education
  • Customer Perceptions of Value Value-Based Pricing Good-value pricing offers the right combination of quality and good service to fair price. Existing brands are being redesigned to offer more quality for a given price or the same quality for less price. Ch 10 -9 Copyright © 2011 Pearson Education
  • Customer Perceptions of Value Value-Based Pricing: Good-Value Pricing Everyday low pricing (EDLP) involves charging a constant everyday low price with few or no temporary price discounts. High-low pricing involves charging higher prices on an everyday basis but running frequent promotions to lower prices temporarily on selected items. Ch 10 10 Copyright © 2011 Pearson Education
  • Customer Perceptions of Value Value-Based Pricing: Value-Added Pricing Value-added pricing attaches value-added features and services to differentiate offers, support higher prices, and build pricing power. Pricing power is the ability to escape price competition and to justify higher prices and margins without losing market share. Ch 10 11 Copyright © 2011 Pearson Education
  • Company and Product Costs Cost-Based Pricing Cost-based pricing involves setting prices based on the costs for producing, distributing, and selling the product plus a fair rate of return for its effort and risk. Cost-based pricing adds a standard markup to the cost of the product. Ch 10 -12 Copyright © 2011 Pearson Education
  • Company and Product Costs Types of costs Ch 10 -13 Copyright © 2011 Pearson Education
  • Company and Product Costs Types of costs Fixed costs are the costs that do not vary with production or sales level. • Rent • Heat • Interest • Executive salaries Ch 10 -14 Copyright © 2011 Pearson Education
  • Company and Product Costs Types of Costs Variable costs are the costs that vary with the level of production. • Packaging • Raw materials Total costs are the sum of the fixed and variable costs for any given level of production. Average cost is the cost associated with a given level of output. Ch 10 -15 Copyright © 2011 Pearson Education
  • Company and Product Costs Ch 10 -16 Copyright © 2011 Pearson Education
  • Company and Product Costs Costs as a Function of Production Experience Experience or learning curve is when average cost falls as production increases because fixed costs are spread over more units. Ch 10 -17 Copyright © 2011 Pearson Education
  • Company and Product Costs Costs as a Function of Production Experience
  • Company and Product Costs Cost-Plus Pricing Cost-plus pricing adds a standard markup to the cost of the product Benefits. • Sellers are certain about costs • Prices are similar in industry and price competition is minimized • Consumers feel it is fair Disadvantages • Ignores demand and competitor prices Ch 10 -19 Copyright © 2011 Pearson Education
  • Company and Product Costs Break-Even Analysis and Target Profit Pricing Break-even pricing is the price at which total costs are equal to total revenue and there is no profit. Target profit pricing is the price at which the firm will break even or make the profit it’s seeking. Ch 10 -20 Copyright © 2011 Pearson Education
  • Company and Product Costs Ch 10 -21 Copyright © 2011 Pearson Education
  • Other Internal and External Considerations Affecting Price Decisions Considerations Customer perceptions of value set the upper limit for prices, and costs set the lower limit. Companies must consider internal and external factors when setting prices. Ch 10 -22 Copyright © 2011 Pearson Education
  • Other Internal and External Considerations Affecting Price Decisions Overall Marketing Strategy, Objectives, and Mix Target costing starts with an ideal selling price based on consumer value considerations and then targets costs that will ensure that the price is met. Ch 10 -23 Copyright © 2011 Pearson Education
  • Other Internal and External Considerations Affecting Price Decisions Organizational considerations Organizational considerations include: • Who should set the price • Who can influence the prices Ch 10 -24 Copyright © 2011 Pearson Education
  • Other Internal and External Considerations Affecting Price Decisions The Market and Demand Before setting prices, the marketer must understand the relationship between price and demand for its products. • Pricing in Different Types of Markets • Analyzing the Price-Demand Relationship • Price Elasticity of Demand Ch 10 -25 Copyright © 2011 Pearson Education
  • Other Internal and External Considerations Affecting Price Decisions Pricing in Different Types of Markets Ch 10 -26 Copyright © 2011 Pearson Education
  • Other Internal and External Considerations Affecting Price Decisions Analyzing the Price-Demand Relationship The demand curve shows the number of units the market will buy in a given period at different prices. • Normally, demand and price are inversely related • Higher price = lower demand • For prestige (luxury) goods, higher price can equal higher demand when consumers perceive higher prices as higher quality Ch 10 -27 Copyright © 2011 Pearson Education
  • Other Internal and External Considerations Affecting Price Decisions Price Elasticity of Demand Ch 10 -28 Copyright © 2011 Pearson Education
  • Other Internal and External Considerations Affecting Price Decisions Price Elasticity of Demand Price elasticity of demand illustrates the response of demand to a change in price. Inelastic demand occurs when demand hardly changes when there is a small change in price. Elastic demand occurs when demand changes greatly for a small change in price. Price elasticity of demand = % change in quantity demand % change in price Ch 10 -29 Copyright © 2011 Pearson Education
  • Other Internal and External Considerations Competitor's Strategies Competitors’ Strategies and Prices • Comparison of offering in terms of customer value • Strength of competitors • Competition pricing strategies • Customer price sensitivity Ch 10 -30 Copyright © 2011 Pearson Education
  • Other Internal and External Consideration Affecting Price Decisions Other External Factors Ch 10 -31 Copyright © 2011 Pearson Education
  • New-Product Pricing Strategies Ch 10 -32 Copyright © 2011 Pearson Education
  • New-Product Pricing Strategies Market-skimming pricing is a strategy with high initial prices to “skim” revenue layers from the market. • Product quality and image must support the price • Buyers must want the product at the price • Costs of producing the product in small volume should not cancel the advantage of higher prices • Competitors should not be able to enter the market easily Ch 10 -33 Copyright © 2011 Pearson Education
  • New-Product Pricing Strategies Market-penetration pricing sets a low initial price in order to penetrate the market quickly and deeply to attract a large number of buyers quickly to gain market share. • Price sensitive market • Inverse relationship of production and distribution cost to sales growth • Low prices must keep competition out of the market Ch 10 -34 Copyright © 2011 Pearson Education
  • Product Mix Pricing Strategies Ch 10 -35 Copyright © 2011 Pearson Education
  • Product Mix Pricing Strategies Product line pricing takes into account the cost differences between products in the line, customer evaluation of their features, and competitors’ prices. Optional-product pricing takes into account optional or accessory products along with the main product. Ch 10 -36 Copyright © 2011 Pearson Education
  • Product Mix Pricing Strategies Captive-product pricing involves products that must be used along with the main product. For Services, it is called Two-part pricing. • Fixed fee • Variable usage fee Ch 10 -37 Copyright © 2011 Pearson Education
  • Price Mix Pricing Strategies By-product pricing refers to products with little or no value produced as a result of the main product. Producers will seek little or no profit other than the cost to cover storage and delivery. Product bundle pricing combines several products at a reduced price. Ch 10 -38 Copyright © 2011 Pearson Education
  • Price-Adjustment Strategies Ch 10 -39 Copyright © 2011 Pearson Education
  • Price-Adjustment Strategies Discount and allowance pricing reduces prices to reward customer responses such as paying early or promoting the product. • Discounts: cash, quantity, functional, seasonal Ch 10 -40 Copyright © 2011 Pearson Education
  • Price-Adjustment Strategies Segmented pricing is used when a company sells a product at two or more prices even though the difference is not based on cost. • Customer • Product form • Location Ch 10 -41 Copyright © 2011 Pearson Education
  • Price-Adjustment Strategies For Segmented Pricing to be effective: • Market must be segmentable • Segments must show different degrees of demand • Watching the market cannot exceed the extra revenue obtained from the price difference • Must be legal Ch 10 -42 Copyright © 2011 Pearson Education
  • Price-Adjustment Strategies Psychological pricing occurs when sellers consider the psychology of prices and not simply the economics. Reference prices are prices that buyers carry in their minds and refer to when looking at a given product. • Noting current prices • Remembering past prices • Assessing the buying situations Ch 10 -43 Copyright © 2011 Pearson Education
  • Price-Adjustment Strategies Promotional pricing is when prices are temporarily priced below list price or cost to increase demand. • Loss leaders • Special event pricing • Cash rebates • Low-interest financing • Longer warrantees • Free maintenance Ch 10 -44 Copyright © 2011 Pearson Education
  • Price-Adjustment Strategies Risks of promotional pricing • If it is used too frequently and copied by competitors, it can create “deal-prone” customers who will wait for promotions and avoid buying at regular price • Creates price wars Ch 10 -45 Copyright © 2011 Pearson Education
  • Price-Adjustment Strategies Geographic Pricing Geographical pricing is used for customers in different parts of the country or the world. • FOB-origin pricing • Uniformed-delivered pricing • Zone pricing • Freight-absorption pricing Ch 10 -46 Copyright © 2011 Pearson Education
  • Price-Adjustment Strategies Geographic Pricing FOB-origin (free on board) pricing means that the goods are delivered to the carrier and the title and responsibility passes to the customer. Uniform-delivered pricing means the company charges the same price plus freight to all customers, regardless of location. Ch 10 -47 Copyright © 2011 Pearson Education
  • Price-Adjustment Strategies Geographic Pricing Zone pricing means that the company sets up two or more zones where customers within a given zone pay a single total price. Basing-point pricing means the seller designates some city as a basing point and charges all customers the freight cost from that city to the customer. Freight-absorption pricing means the seller absorbs all or part of the actual freight charge as an incentive to attract business in competitive markets. Ch 10 -48 Copyright © 2011 Pearson Education
  • Price-Adjustment Strategies Dynamic Pricing Dynamic pricing is when prices are adjusted continually to meet the characteristics and needs of the individual customer and situations. Ch 10 -49 Copyright © 2011 Pearson Education
  • Price-Adjustment Strategies Pricing Strategies International pricing is when prices are set in a specific country based on country-specific factors. • Economic conditions • Competitive conditions • Laws and regulations • Infrastructure • Company marketing objective Ch 10 -50 Copyright © 2011 Pearson Education
  • Price Changes Initiating Pricing Changes Ch 10 -51 Copyright © 2011 Pearson Education
  • Price Changes Buyer Reactions to Pricing Changes Ch 10 -52 Copyright © 2011 Pearson Education
  • Price Changes Competitor Reactions to Pricing Changes Competitors usually react when: • The number of firms involved is small • The product is uniform • The buyers are well informed about products and prices Ch 10 -53 Copyright © 2011 Pearson Education
  • Price Changes Responding to Price Changes Questions • Why did the competitor change the price? • Is the price cut permanent or temporary? • What is the effect on market share and profits? • Will competitors respond? Ch 10 -54 Copyright © 2011 Pearson Education
  • Price Changes Responding to Price Changes Solutions • Reduce price to match competition • Maintain price but raise the perceived value through communications • Improve quality and increase price • Launch a lower-price “fighting” brand Ch 10 -55 Copyright © 2011 Pearson Education
  • Price Changes Ch 10 -56 Copyright © 2011 Pearson Education
  • This work is protected by local and international copyright laws and is provided solely for the use of instructors in teaching their courses and assessing student learning. Dissemination or sale of any part of this work (including on the World Wide Web) will destroy the integrity of the work and is not permitted. The work and materials from this site should never be made available to students except by instructors using the accompanying text in their classes. All recipients of this work are expected to abide by these restrictions and to honor the intended pedagogical purposes and the needs of other instructors who rely on these materials. Ch 10 -57 Copyright © 2011 Pearson Education