1. 14
Developing Pricing
Strategies and Programs
Marketing Management, 13th ed

2. Chapter Questions
• 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?
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3. Gillette Commands a
Price Premium
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4. Synonyms for Price
• Rent • Special assessment
• Tuition • Bribe
• Fee • Dues
• Fare • Salary
• Rate • Commission
• Toll • Wage
• Premium • Tax
• Honorarium
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5. Common Pricing Mistakes
• Determine costs and take traditional industry
margins
• Failure to revise price to capitalize on market
changes
• Setting price independently of the rest of the
marketing mix
• Failure to vary price by product item, market
segment, distribution channels, and
purchase occasion
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6. Consumer Psychology
and Pricing
Reference Prices
Price-quality inferences
Price endings
Price cues
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7. Table 14.1 Possible Consumer
Reference Prices
• “Fair price” • Lower-bound price
• Typical price • Competitor prices
• Last price paid • Expected future
• Upper-bound price price
• Usual discounted
price
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8. Table 14.2 Consumer Perceptions vs.
Reality for Cars
Overvalued Brands Undervalued Brands
• Land Rover • Mercury
• Kia • Infiniti
• Volkswagen • Buick
• Volvo • Lincoln
• Mercedes • Chrysler
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9. Tiffany’s
Price-Quality Relationship
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10. Price Cues
• “Left to right” pricing ($299 vs. $300)
• Odd number discount perceptions
• Even number value perceptions
• Ending prices with 0 or 5
• “Sale” written next to price
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11. When to Use Price Cues
• Customers
purchase item
infrequently
• Customers are new
• Product designs
vary over time
• Prices vary
seasonally
• Quality or sizes vary
across stores
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12. Steps in Setting Price
Select the price objective
Determine demand
Estimate costs
Analyze competitor price mix
Select pricing method
Select final price
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13. Step 1: Selecting the Pricing Objective
• Survival
• Maximum current
profit
• Maximum market
share
• Maximum market
skimming
• Product-quality
leadership
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14. Step 2: Determining Demand
Price Sensitivity
Estimating
Demand Curves
Price Elasticity
of Demand
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15. Figure 14.2 Inelastic
and Elastic Demand
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16. Table 14.3 Factors Leading to Less
Price Sensitivity
• The product is more distinctive
• Buyers are less aware of substitutes
• Buyers cannot easily compare the quality of substitutes
• The expenditure is a smaller part of buyer’s total income
• The expenditure is small compared to the total cost of
the end product
• Part of the cost is paid by another party
• The product is used with previously purchased assets
• The product is assumed to have high quality and
prestige
• Buyers cannot store the product
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17. Step 3: Estimating Costs
Types of Costs
Accumulated
Production
Activity-Based
Cost Accounting
Target Costing
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18. Cost Terms and Production
• Fixed costs
• Variable costs
• Total costs
• Average cost
• Cost at different
levels of
production
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19. Figure 14.4 Cost per Unit as a
Function of Accumulated Production
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20. 9 Lives Uses Target Costing
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21. Step 5: Selecting a Pricing Method
• Markup pricing
• Target-return pricing
• Perceived-value
pricing
• Value pricing
• Going-rate pricing
• Auction-type pricing
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22. Figure 14.6 Break-Even Chart
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23. Auction-Type Pricing
English auctions
Dutch auctions
Sealed-bid auctions
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24. Step 6: Selecting the Final Price
• Impact of other
marketing activities
• Company pricing
policies
• Gain-and-risk sharing
pricing
• Impact of price on
other parties
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25. Price-Adaptation Strategies
Geographical Pricing
Discounts/Allowances
Promotional Pricing
Differentiated Pricing
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26. Price-Adaptation Strategies
Countertrade Discounts/ Allowances
• Barter • Cash discount
• Compensation deal • Quantity discount
• Buyback • Functional discount
arrangement • Seasonal discount
• Offset • Allowance
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27. Promotional Pricing Tactics
• Loss-leader pricing
• Special-event pricing
• Cash rebates
• Low-interest financing
• Longer payment terms
• Warranties and service
contracts
• Psychological
discounting
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28. Differentiated Pricing
• Customer-segment
pricing
• Product-form pricing
• Image pricing
• Channel pricing
• Location pricing
• Time pricing
• Yield pricing
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29. Table 14.6 Profits Before and After a
Price Increase
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30. Increasing Prices
Delayed quotation pricing
Escalator clauses
Unbundling
Reduction of discounts
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31. Brand Leader Responses to
Competitive Price Cuts
• Maintain price
• Maintain price and add value
• Reduce price
• Increase price and improve quality
• Launch a low-price fighter line
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32. Marketing Debate
 Is the right price a fair price?
Take a position:
1. Prices should reflect the value that
consumers are willing to pay.
or
2. Prices should primarily just reflect the cost
involved in making a product.
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33. Marketing Discussion
 Think of all the pricing methods
described in the chapter.
 As a consumer, which pricing method
do you personally prefer to deal with?
 Why?
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