This document summarizes key points from a marketing management class presentation about understanding pricing strategies. It discusses that price is the only revenue-generating element of the marketing mix. It also explains that large companies typically have product managers and marketing teams set prices, while small companies usually have top management decide. Additionally, the document outlines important aspects of consumer psychology to consider for pricing, including reference prices, price-quality inferences, and price endings/cues. Consumers compare prices to internal references and use price as a signal of quality, especially without other information. Proper use of price endings and cues like "sale" can also impact perceptions.

1. MG 220 Marketing Management
BBA 09 – Sec C
Fall 2010
Muhammad Talha Salam, Asst. Professor
talha.salam@nu.edu.pk
Access it online: www.slideshare.net/talhasalam
Part 5:
Shaping the Marketing Offerings
> Understanding Pricing
> Setting the Price: Review
Class Presentation | Session 23 | 3 Nov 2010

2. Access it online: www.slideshare.net/talhasalam
Understanding Pricing
Price is the only revenue-producing “P”. Rest all are costs
Historically:
• Price was always set with negotiations.
• Only in 19th century, one-price concept was introduced which we all use today
(mostly)
How Companies Price
• Large Companies: Pricing is handled by Product Manager, Line Managers,
Marketing team etc.
• Small Companies: Top Management decides
• Even in Large companies, price is based on some important objectives
MG 220 Marketing Management 2

3. Access it online: www.slideshare.net/talhasalam
Understanding Pricing
Setting Pricing Strategy & Objectives requires understanding of
Consumer Psychology
Consumer Psychology & Pricing
• Economists consider consumers to be ‘price-takers’
• IMP: Consumers have their own perceptions and purchasing decisions
are based on their perception of a product’s stated and its stated price
• Three important topics to be considered:
– Reference Prices
– Price-Quality Inferences
– Price Endings (or Cues)
MG 220 Marketing Management 3

4. Access it online: www.slideshare.net/talhasalam
Understanding Pricing
Consumer Psychology & Pricing
• Reference Prices
– Consumer’s own knowledge of prices
– Generally a range and not exact number
– Consumers compare observed prices with both internal and external reference prices
– When these references are evoked:
Unpleasant surprises (if ref. price is lower than observed) can impact more than pleasant
surprises (if ref. price is higher than observed)
• Price-Quality Inferences
– Many consumers use price as an indicator of Quality
– Example of Perfume: It may cost 20 Rs but selling it even for 40 will give signal of being a
low quality product!
– Price acts a signal of quality particularly when there is no other indicator or information
about quality is available.
• Price Cues
– Many sellers believe price should end in an odd number
– Also using 299 instead of 300 gives a different cue
– Using “Sale” can also give a perception about price
– But it should be used very carefully
MG 220 Marketing Management 4

5. MG 220 Marketing Management
BBA 09 – Sec C
Fall 2010
Muhammad Talha Salam, Asst. Professor
talha.salam@nu.edu.pk
Access it online: www.slideshare.net/talhasalam
Part 5:
Shaping the Marketing Offerings
> Setting the Price
> Adapting the Price
> Initiating and Responding to Price Changes
Class Presentation | Session 24 | 8 Nov 2010