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- 1. Developing Pricing Strategies and Programs Marketing Management, 13th ed 14
- 2. Copyright © 2009 Pearson Education, Inc. Publishing as Prentice Hall 14-2 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?
- 3. Copyright © 2009 Pearson Education, Inc. Publishing as Prentice Hall 14-3 Gillette Commands a Price Premium
- 4. Copyright © 2009 Pearson Education, Inc. Publishing as Prentice Hall 14-4 Synonyms for Price • Rent • Tuition • Fee • Fare • Rate • Toll • Premium • Honorarium • Special assessment • Bribe • Dues • Salary • Commission • Wage • Tax
- 5. Copyright © 2009 Pearson Education, Inc. Publishing as Prentice Hall 14-5 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
- 6. Copyright © 2009 Pearson Education, Inc. Publishing as Prentice Hall 14-6 Consumer Psychology and Pricing Reference Prices Price-quality inferences Price endings Price cues
- 7. Copyright © 2009 Pearson Education, Inc. Publishing as Prentice Hall 14-7 Table 14.1 Possible Consumer Reference Prices • “Fair price” • Typical price • Last price paid • Upper-bound price • Lower-bound price • Competitor prices • Expected future price • Usual discounted price
- 8. Copyright © 2009 Pearson Education, Inc. Publishing as Prentice Hall 14-8 Table 14.2 Consumer Perceptions vs. Reality for Cars Overvalued Brands • Land Rover • Kia • Volkswagen • Volvo • Mercedes Undervalued Brands • Mercury • Infiniti • Buick • Lincoln • Chrysler
- 9. Copyright © 2009 Pearson Education, Inc. Publishing as Prentice Hall 14-9 Tiffany’s Price-Quality Relationship
- 10. Copyright © 2009 Pearson Education, Inc. Publishing as Prentice Hall 14-10 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
- 11. Copyright © 2009 Pearson Education, Inc. Publishing as Prentice Hall 14-11 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
- 12. Copyright © 2009 Pearson Education, Inc. Publishing as Prentice Hall 14-12 Steps in Setting Price Select the price objective Determine demand Estimate costs Analyze competitor price mix Select pricing method Select final price
- 13. Copyright © 2009 Pearson Education, Inc. Publishing as Prentice Hall 14-13 Step 1: Selecting the Pricing Objective • Survival • Maximum current profit • Maximum market share • Maximum market skimming • Product-quality leadership
- 14. Copyright © 2009 Pearson Education, Inc. Publishing as Prentice Hall 14-14 Step 2: Determining Demand Price Sensitivity Estimating Demand Curves Price Elasticity of Demand
- 15. Copyright © 2009 Pearson Education, Inc. Publishing as Prentice Hall 14-15 Figure 14.2 Inelastic and Elastic Demand
- 16. Copyright © 2009 Pearson Education, Inc. Publishing as Prentice Hall 14-16 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
- 17. Copyright © 2009 Pearson Education, Inc. Publishing as Prentice Hall 14-17 Step 3: Estimating Costs Types of Costs Target Costing Accumulated Production Activity-Based Cost Accounting
- 18. Copyright © 2009 Pearson Education, Inc. Publishing as Prentice Hall 14-18 Cost Terms and Production • Fixed costs • Variable costs • Total costs • Average cost • Cost at different levels of production
- 19. Copyright © 2009 Pearson Education, Inc. Publishing as Prentice Hall 14-19 Figure 14.4 Cost per Unit as a Function of Accumulated Production
- 20. Copyright © 2009 Pearson Education, Inc. Publishing as Prentice Hall 14-20 9 Lives Uses Target Costing
- 21. Copyright © 2009 Pearson Education, Inc. Publishing as Prentice Hall 14-21 Step 5: Selecting a Pricing Method • Markup pricing • Target-return pricing • Perceived-value pricing • Value pricing • Going-rate pricing • Auction-type pricing
- 22. Copyright © 2009 Pearson Education, Inc. Publishing as Prentice Hall 14-22 Figure 14.6 Break-Even Chart
- 23. Copyright © 2009 Pearson Education, Inc. Publishing as Prentice Hall 14-23 Auction-Type Pricing English auctions Dutch auctions Sealed-bid auctions
- 24. Copyright © 2009 Pearson Education, Inc. Publishing as Prentice Hall 14-24 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
- 25. Copyright © 2009 Pearson Education, Inc. Publishing as Prentice Hall 14-25 Price-Adaptation Strategies Geographical Pricing Discounts/Allowances Differentiated Pricing Promotional Pricing
- 26. Copyright © 2009 Pearson Education, Inc. Publishing as Prentice Hall 14-26 Price-Adaptation Strategies Countertrade • Barter • Compensation deal • Buyback arrangement • Offset Discounts/ Allowances • Cash discount • Quantity discount • Functional discount • Seasonal discount • Allowance
- 27. Copyright © 2009 Pearson Education, Inc. Publishing as Prentice Hall 14-27 Promotional Pricing Tactics • Loss-leader pricing • Special-event pricing • Cash rebates • Low-interest financing • Longer payment terms • Warranties and service contracts • Psychological discounting
- 28. Copyright © 2009 Pearson Education, Inc. Publishing as Prentice Hall 14-28 Differentiated Pricing • Customer-segment pricing • Product-form pricing • Image pricing • Channel pricing • Location pricing • Time pricing • Yield pricing
- 29. Copyright © 2009 Pearson Education, Inc. Publishing as Prentice Hall 14-29 Table 14.6 Profits Before and After a Price Increase
- 30. Copyright © 2009 Pearson Education, Inc. Publishing as Prentice Hall 14-30 Increasing Prices Delayed quotation pricing Escalator clauses Unbundling Reduction of discounts
- 31. Copyright © 2009 Pearson Education, Inc. Publishing as Prentice Hall 14-31 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
- 32. Copyright © 2009 Pearson Education, Inc. Publishing as Prentice Hall 14-32 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.
- 33. Copyright © 2009 Pearson Education, Inc. Publishing as Prentice Hall 14-33 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?