Summary of Chapter 13 - Philip Kotler

1. Developing
Pricing Strategies

2. How should a company set
prices initially?

4. Step 1: Selecting
the Price Objective

5. Survival

6. Maximum
Current
Profit

7. Maximum Market Share

8. Maximum Market Skimming
Starting at high
prices and slowly
dropping it over time

9. Product Quality
Leadership
Setting price high
enough to establish
itself as quality
leader

10. Other objectives May include
anything from
public service to
service by public

11. Step 2: Determining Demand
Each price will lead to a different demand
Normally price and demand have an inverse relationship.

12. However for prestige goods sometimes the relation is direct.
More the price more the demand

13. Price
Sensitivity
Generally consumers are less
sensitive to low cost items

14. Other
factors
leading to
less price
sensitivity
The product is more distinctive.
Buyers are less aware of substitutes or cannot easily compare them
Expenditure is smaller part of buyer’s income
Expenditure is small compared to total cost of 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 or prestige

15. Estimating
Demand Curves

16. @Surveys

17. @Price
Experiments
Vary price geographically
Vary prices on different products in a store
Use the internet.

18. @Statistical
Analysis

19. Price Elasticity of Demand

21. Step 3:
Estimating Costs

22. Types of costs
• Fixed cost
• Variable Costs
• Total Costs – Sum of Fixed and Variable
• Average Cost – Cost per unit

24. Accumulated Production – The Experience Curve
As workers become more experienced the average cost decreases

25. Target Costing
Marketers research a new product’s desired functions and
the price it will sell.
The firm must examine all its cost elements and bring down
costs in the target range.

26. Step 4: Analyzing Competitors'
Costs, Prices and Offers

27. If the firm’s offer contains features not offered by its nearest
competitor, it should its worth add that to the competitor’s
price.
If the competitor’s offer contains features not offered by the
firm then it should subtract their value from its own price

28. Step 5: Selecting a Pricing Method
Unit cost = Variable Cost +
Fixed Cost
Unit Sales

29. Markup Pricing =
Unit Cost
(1-desired return on sales)
Target
Return =
Pricing
Unit cost +
(Desired return) X (invested capital)
Unit Sales

30. Perceived Value
Pricing
500 for the Tee 500 for the Tee
1000 for the

31. Value Pricing
Setting low prices
without sacrificing
quality to attract
large no of customers

32. Going
Rate
Pricing
Follow the leader

33. Auction type Pricing

34. Auction type Pricing
English Auctions (ascending bids)
Dutch Auctions (descending bids)
Sealed-bid Auctions

35. Step 6: Setting the
Final price

36. Impact on other marketing activities
Price must not have a negative
impact on company’s image

37. Company
Pricing Policies
Must be consistent with company policies

38. Gain-and-Risk- sharing
Pricing

39. Impact of price on
other parties
Dealers
Distributers
Sales Team

41. Created by Ronak Jain, NIT Surat, during an internship by
Prof. Sameer Mathur,
IIM Lucknow.
www.IIMInternship.com