Chapter 14 Developing Pricing Strategies & Programs

www.linkedin.com/in/maylin-calva
Maylin Calva
Ateneo Graduate School of Business
R17 TSMARKMA
DEVELOPING PRICING
STRATEGIES & PROGRAMS
(The Price is Right?)
Is the Right Price a Fair Price?

• How do consumers process and evaluate prices?
• How should a company set prices initially for
products or services?
• How should a company adapt prices to meet
varying circumstances and opportunities?
• When should a company initiate a price change?
• How should a company respond to a
competitor’s price challenge?
Outine and Objective:
The Price is Right?

The Price is Right?
Rent
Tuition Fee
Fare
Rate
Toll
Premium
Honorarium
Special assessmen
Bribe
Dues
Salary
Commission
Wage
Tax

The internet and the Price:
When the Price is Wrong
1. Determine costs and take traditional industry
margins
2. Failure to revise price to capture market
changes
3. Independently pricing of the rest of the
marketing mix
4. Failure to diversify price portfolio (product
item, market segment, distribution channels,
and purchase occasion)
And how to make it right:

Consumer and Price
How to read Customer mind:
1. Reference prices
2. Price-quality inferences
3 Price endings
4 Price cues

Consumer and Price
1. Fair price
2. Typical price
3. Last price paid
4. Upper-bound price

Consumer and Price
1. Lower-bound price
2. Competitor prices
3. Expected future price
4. Usual discounted price

Customer and Price
Tiers in Pricing

Understanding Pricing:
Making the Price Right
Steps to make a right pricing:
1 Select the price objective
2 Determine demand
3. Estimate costs
4. Analyze competitor price mix
5. Select pricing method
6. Select final price

(1) Selecting the Pricing Objective
1. Survival
2. Maximum current profit
3. Maximum market share
4. Maximum market skimming
5. Product-quality leadership

(2) Determining Demand
1. Price sensitivity
2. Estimate demand curves
3. Price elasticity of demand

Figure 14.1 Inelastic and Elastic Demand

1. The product is more distinctive
2. Buyers are less aware of substitutes
3. Buyers cannot easily compare the quality of substitute
4. Expenditure is a smaller part of buyer’s total income
5. Expenditure is small compared to the total cost
6. Part of the cost is paid by another party
7. Product is used with previously purchased assets
8. Product is assumed to have high quality and prestige
9. Buyers cannot store the product

(3) Estimating Cost
1. Types of costs
2. Accumulated production
3. Activity-based cost accounting
4. Target costing

(3) Estimating Cost
Figure 14.2 Cost Per Unit at Different Levels of Production

(3) Estimating Cost
Cost Terms and Production
1. Fixed costs
2. Variable costs
3. Total costs
4. Average cost
5. Cost at different levels of production

(3) Estimating Cost
Cost per Unit as a Function of Accumulated Production

Target Costing

(4) Analyzing Competitors Cost

(4) Analyzing Competitors Cost
The Three Cs Model for Price-Setting

(5) Selecting Price Model
1. Markup pricing
2. Target-return pricing
3. Perceived-value pricing
4. Value pricing
5. Going-rate pricing
6. Auction-type pricing

Break-Even Chart for Determining Target-Return
Price and Break-Even Volume

Auction-Type Pricing
English
Dutch
Sealed-Bid

(5) Selecting the Final Price
•Impact of other marketing activities
•Company pricing policies
•Gain-and-risk sharing pricing
•Impact of price on other parties

Geographical Pricing
•Pricing varies by location

Price Discounts and Allowances
1. Discount
2. Quantity discount
3. Functional discount
4. Seasonal discount
5. Allowance

Promotional Pricing Tactics
1. Loss-leader pricing
2. Special-event pricing
3. Cash rebates
4. Low-interest financing
5. Longer payment terms
6. Warranties and service contracts
7. Psychological discounting

Differentiated Pricing
1. Customer-segment pricing
2. Product-form pricing
3. Image pricing
4. Channel pricing
5. Location pricing
6. Time pricing
7. Yield pricing

Traps in Price Cutting Strategies
1. Low-quality trap
2. Fragile-market-share trap
3. Shallow-pockets trap
4. Price-war trap

Should We Raise Prices?

Methods for Increasing Prices
1. Delayed quotation pricing
2. Escalator clauses
3. Unbundling
4. Reduction of discounts

1. Maintain price
2. Maintain price and add value
3. Reduce price
4. Increase price and improve quality
5. Launch a low-price fighter line
Brand Leader Responses to Competitive Price Cuts

Application

Application
HANDSET LEVEL
Quality
Delivery
Re-man TAT
Parts availability
PARTS LEVEL Tier 2
Quality
Delivery
Qual TAT
Yield & Cost Volume buy’s
Opportunity buy’s
Considerations in Pricing

Summary
1. How do consumers process and evaluate prices?
Price remains a critical element of marketing.
It is the only element that produces revenue.
Pricing decisions are due to changing economic
and technological environment.

Summary
2. How should a company set prices initially for products or
services? A company follows a (6) six step procedure.
(1) It selects its pricing objectives.
(2)It estimates the demand curve, the probable quantities
(3) It will sell at each possible price.
(4)It estimates how its costs vary at different levels of
output, at different levels of accumulated production
experience and for differentiated marketing offer.
(5) It examines competitors costs, prices and offers.
(6) It selects a pricing method and it selects the final price

Summary
3. How should a company adapt prices to meet varying
circumstances and opportunities?
Companies usually a set pricing structure that reflects
variations in geographical demand and costs,
market segment requirements, purchase timing,
order levels and other factors. There are 4 price-
adaptation strategies available:
(1) geographical pricing,
(2) price discounts and allowances
(3) promotional pricing
(4) discriminatory pricing.

Summary
4. When should a company initiate a price change?
Firms often need to change their prices. A price decrease
might be brought about by excess plant capacity,
declining market share, a desire to dominate the
market through lower costs or economic recession
A price increase might be brought about by cost inflation
or over demand. Companies must carefully manage
customer perceptions when raising price.

Summary
5. How should a company respond to a competitor’s price
challenge?
Firms often need to change their prices. A price decrease
might be brought about by excess plant capacity,
declining market share, a desire to dominate the
market through lower costs or economic recession
A price increase might be brought about by cost inflation
or over demand. Companies must carefully manage
customer perceptions when raising price.

Summary
6. How should a company respond to a competitor’s
price challenge?
Companies must anticipate competitor price changes
and prepare contingent responses. A number of
responses are possible in terms of maintaining or
changing price or quality

Maylin Calva
Ateneo Graduate School of Business
R15 MARKMA
DEVELOPING PRICING
STRATEGIES & PROGRAMS
(The Price is Right?)
Is the Right Price a Fair Price?

Chapter 14 Developing Pricing Strategies & Programs

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