This document discusses pricing strategies and considerations. It identifies three major pricing strategies: value-based pricing, cost-based pricing, and competition-based pricing. It also outlines important external factors like the market, economy, and competition, and internal factors like costs, objectives, and marketing mix that affect pricing decisions. The document describes different types of pricing for new products like market skimming and market penetration pricing. It also discusses methods for adjusting prices through discounts, segmentation, promotions, and geography.

1. MARKETING
MANAGEMENT
Session 7
Pricing Strategy

2. OBJECTIVES
o Identify the three major pricing strategies and discuss
the importance of understanding customer value
perceptions, company costs, and competitor strategies
when setting prices.
o Identify and define the other important external and
internal factors affecting a firm’s pricing decisions.
o Describe the major strategies for pricing new
products.

3. WHAT IS A 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

4. CONSIDERATIONS IN SETTING PRICE
9 - 4

5. VALUE-BASED PRICING VS.
COST-BASED PRICING
9 - 5

6. VALUE-BASED PRICING
2 types of value-based pricing:
 Good value pricing
Offering just the right combination of quality and
good service at a fair price to match with changing
economic conditions and consumer price perception.
 Value-added pricing
Attaching value-added features and services to
differentiate a company’s offer and charging higher
prices to increase company’s pricing power.

7. TYPE OF GOOD-VALUE PRICING
IN THE RETAIL LEVEL
 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.

8. COMPANY & PRODUCT COSTS
Types of Costs
 Fixed costs
Costs that do not vary with production or sales level
e.g. each month’s bills for rent, interest, employee
salaries.
 Variable costs
Costs that vary directly with the level of production
e.g. raw materials are needed in production process.
 Total costs = Fixed costs + Variable costs
The sum of the fixed and variable costs for any given
level of production.

9. TYPES OF COST-BASED PRICING
• Adding a standard markup to the cost of the product
Cost-plus pricing (markup pricing)
• Setting price to break even on the costs of making and
marketing a product, or setting price to make a target
return
Break-even pricing (target return pricing)
9 - 9

10. BREAK-EVEN CHART FOR DETERMINING TARGET
RETURN PRICE AND BREAK-EVEN VOLUME
9 - 10

11. PRICING METHOD
Cost-plus pricing (markup price)
Adding a standard markup to the cost of the product.
 Suppose a toaster manufacturer had the following costs and expected sales:
 Variable cost $10
 Fixed costs $300,000
 Expected unit sales 50,000
 unit cost = var cost +(fix cost/unit sales) = $10+($300,000/50,000) = $16
 Suppose the manufacturer wants to earn a 20% markup on sales. The
manufacturer’s markup price is given by the following:
 Markup price = unit cost / (1- desired return on sales) = $16/ (1-0.2) = $20
 The manufacturer would charge dealers $20 per toaster and make profit of $4
($20 - $16) per unit.
 The dealers, in turn, will mark up the toaster. If dealers want to earn 50
percent on the sales price, what is the mark up price for dealer?
$40

12. Break-Even Pricing (Target Profit Pricing)
Setting price to break even on the costs of making and marketing product,
or setting price to make a target profit.
 Break-Even Volume = Fix cost / (price – variable cost) = $300,000 / ($20-
$10) = 30,000
PRICING METHOD
If the company wants to make a target profit, it must sell more than
30,000 units at $20 each.

13. COMPETITION-BASED PRICING
 Competition-based pricing involves setting prices based on
competitors’ strategies, costs, prices, and market offerings. Consumers
will base their judgments of a product’s value on the prices that
competitors charge for similar products.
First, how does the company’s market offering compare with competitors’
offerings in terms of customer value?
• If consumers perceive that the company’s product or service provides
greater value  charge a higher price.
• If consumers perceive less value relative to competing products, 
charge a lower price or change customer perceptions.
how strong are current competitors, and what are their current pricing
strategies?
• If the company faces a host of smaller competitors charging high prices
relative to the value they deliver,  charge lower price
• If the market is dominated by larger, low-price competitors,  target
unserved market niches with value-added products at higher prices.

14. CONSIDERATIONS AFFECTING
PRICING DECISIONS
 Internal factors
 Overall marketing strategy, objectives, and mix
 Organizational considerations
 External factors
 Nature of the market and demand
 Economy
 Parties in the external environment
 Resellers, government, and social concerns
9 - 18

15. NEW-PRODUCT PRICING STRATEGIES
•Setting a high price for a new product to skim maximum
revenues layer by layer from the segments willing to pay the
high price
•Company makes fewer but more profitable sales
Market-skimming pricing
•Setting a low price for a new product to attract a large number
of buyers and a large market share
Market-penetration pricing

16. WHEN TO USE MARKET-SKIMMING PRICING
• Product’s quality and image supports its higher price
• Costs of low volume cannot be so high that they
cancel out the benefit of higher price
• Competitors should not be able to enter market easily
and undercut price
9 - 21

17. WHEN TO USE MARKET-PENETRATION
PRICING
• Market is highly price sensitive so a low price produces
more growth
• Production and distribution costs decrease as sales
volume increases
• Low price can help keep out the competition, and the
penetration pricer can maintain its low-price position
9 - 22

18. PRODUCT MIX PRICING STRATEGIES

19. PRICE ADJUSTMENT STRATEGIES
 Companies usually adjust their basic prices to account for
various customer differences and changing situations.

20. 12-25
PRICE ADJUSTMENT STRATEGIES
 Discount / allowance
 Segmented
 Psychological
 Promotional
 Geographical
 International
 Types of discounts
 Cash discount
 Quantity discount
 Functional (trade)
discount
 Seasonal discount
 Allowances
 Trade-in allowances
 Promotional allowances
Strategies

21. 12-26
PRICE ADJUSTMENT STRATEGIES
 Discount / allowance
 Segmented
 Psychological
 Promotional
 Geographical
 International
 Types of segmented
pricing strategies:
 Customer-segment
 Product-form pricing
 Location pricing
 Time pricing
 Certain conditions must
exist for segmented
pricing to be effective
Strategies

22. Conditions Necessary for
Segmented Pricing Effectiveness
PRICE ADJUSTMENT STRATEGIES
 Market is segmentable
 Lower priced segments
are not able to resell
 Competitors can not
undersell segments
charging higher prices
 Pricing must be legal
 Costs of segmentation can
not exceed revenues
earned
 Segmented pricing must
reflect real differences in
customers’ perceived value
PRICE ADJUSTMENT STRATEGIES

23. 12-28
PRICE ADJUSTMENT STRATEGIES
 Discount / allowance
 Segmented
 Psychological
 Promotional
 Geographical
 International
 The price is used to say
something about the
product.
 Price-quality relationship
 Reference prices
 Differences as small as five
cents can be important
 Numeric digits may have
symbolic and visual
qualities that
psychologically influence
the buyer
Strategies

24. 12-29
PRICE ADJUSTMENT STRATEGIES
 Discount / allowance
 Segmented
 Psychological
 Promotional
 Geographical
 International
 Temporarily pricing
products below the list
price or even below cost
 Loss leaders
 Special-event pricing
 Cash rebates
 Low-interest financing,
longer warranties, free
maintenance
 Promotional pricing can
have adverse effects
Strategies

25. Promotional Pricing Problems
PRICE ADJUSTMENT STRATEGIES
 Easily copied by
competitors
 Creates deal-prone
consumers
 May erode brand’s
value
 Not a legitimate substitute
for effective strategic
planning
 Frequent use leads to
industry price wars which
benefit few firms
PRICE ADJUSTMENT STRATEGIES

26. 12-31
PRICE ADJUSTMENT STRATEGIES
 Discount / allowance
 Segmented
 Psychological
 Promotional
 Geographical
 International
 Types of geographic
pricing strategies:
 FOB-origin pricing
 Uniform-delivered
pricing
 Zone pricing
 Basing-point pricing
 Freight-absorption
pricing
Strategies

27. 12-32
PRICE ADJUSTMENT STRATEGIES
 Discount / allowance
 Segmented
 Psychological
 Promotional
 Geographical
 International
 Prices charged in a
specific country depend
on many factors
 Economic conditions
 Competitive situation
 Laws / regulations
 Distribution system
 Consumer perceptions
 Cost considerations
Strategies

28. PSYCHOLOGY PRICE
 TACTIC 1: The magic number 9
Biểu đồ của Gumroad’s diễn tả sự khác nhau giữa “giá tròn số”và giá có số đuôi “.99″

29.  TACTIC 2: Reduce the Left Digit By One
Source: The Psychology of Pricing: A Gigantic List of Pricing” by Nick Kolenda

30. TACTIC 3: KEEP THE SHIPPING AND
HANDLING SEPARATE

31. TACTIC 4: OFFER PAYMENTS IN
INSTALLMENTS

32. TACTIC 5: MENTION THE DAILY EQUIVALENCE

33. TACTIC 6: POSITION PRICES TOWARD THE
BOTTOM-LEFT

34. TACTIC 7: USE A SMALLER FONT SIZE

35. TACTIC 8: REMOVE THE COMMA WHEN POSSIBLE

36. TACTIC 10: USE “CONGRUENT” LANGUAGE

37. TACTIC 11: BE PRECISE WITH LARGE PRICES

38. TACTIC 12: EXPOSE PEOPLE TO ANY HIGH NUMBER

39. TACTIC 13: VISUALLY DISTINGUISH
HIGHER PRICE COMPARISONS

40. TACTIC 14: OFFER A DECOY PRODUCT
Economist subscription
Web Only: $59
Print Only: $125
Web and Print: $125

41. TACTIC 15: REDUCE THE “PAIN OF PAYING”
REMOVE THE DOLLAR SIGN
Only use this tactic in formats where
customers will expect a price to appear
(e.g., restaurant menus).

42. TACTIC 16: BUNDLE YOUR PRODUCT

43. TACTIC 17: FOLLOW THE “RULE OF 100”
 Consider a $50 blender. Which discount seems
like a better deal: 20% off vs. $10 off?

44. TATIC 18: PROVIDE A REASON FOR THE
DISCOUNT

45. TACTIC 19: AVOID DISCOUNTS WITH PRECISE
NUMBERS

46. TACTIC 20: USE MORE FREQUENT (YET
SMALLER) PRICE INCREASES

47. TACTIC 21: DOWNSIZE A FEATURE BESIDES PRICE

48. TACTIC 22: DON’T USE BAIT-AND-SWITCH
PRICING

49. FINAL TACTIC: COMMUNICATING
YOUR VALUE
 What makes your product special?
 How is it better than other products?
 Why would customers enjoy it?

50. PRICE CHANGES: INITIATING PRICE CUTS
• Reasons for price cuts
• Excess capacity
• Falling demand in face of strong competitive price or
a weakened economy
• Attempt to dominate market through lower costs
9 - 55

51. PRICE INCREASES
• Can greatly improve
profits and may be
initiated due to:
• Cost inflation
• Overdemand
9 - 56
When gasoline prices rise rapidly, angry
consumers often accuse the major oil companies
of enriching themselves by gouging customers

52. FIGURE 9.5 - ASSESSING AND RESPONDING
TO COMPETITOR PRICE CHANGES