7. Steps in Setting Price Select the price objective (The clearer a firm’s objective, the easier it is to set price) Determine demand (Setting of different prices by product item, market segment, distribution channels, and purchase occasion) Estimate costs (Companies must consider the product costs and utilize different pricing methods) Analyze competitor price mix (The company must take into account its competitors’ costs, prices, and possible price reactions) Select pricing method (The 3 considerations for pricing are the 3 C’s: Cost of Product, Customers and Competitors Select final price (Other factors to consider in pricing are: impact of marketing activities, company pricing policies, gain and risk sharing pricing, and the impact of price on other parties
18. Consumer pricing psychology how consumers arrive at their perceptions of price, the marketers must think of: Reference price: consumers get pricing information from internal reference price (used as habitual decision making) or external reference price (used as limited decision making and extended decision making) Price-quality inferences: many consumers use price as an indicator of quality. Image pricing is effective with ego-sensitive products. E.g perfumes, designer clothes Price cues: consumers tend to process prices in a “left to right” manner rather than by rounding e.g. stereo amplifier priced at 299 instead $300 as a price in the $200 range rather than $300 range Price endings: Prices that end with 0 and 5 are easier for consumers to remember 6
29. 5 Major Pricing Objectives Survival: if a firm sets prices covering variable cost and some fixed cost to face overcapacity, intense competition or changing consumer wants. Maximum current profit: if a firm has knowledge of its demand and cost function, price is set to maximize current profit, cash flow, or ROI Maximum market skimming: if a firm unveiling a new technology favor setting “higher price” as to communicate superior product but sales drop in the next future making the price low e.g. initially higher price for TV flat with billingual system Maximum market share (marketing penetration pricing) if a firm believes a higher sales volume will lead to lower unit cost and higher long run profit. They set “the lowest price” assuming the market is price sensitive. Goal is high sales volume Product-Quality Leadership: company brands strive to be “affordable luxuries”—products or services are characterized by high levels of perceived quality, taste, and status with a price just high enough not to be out of consumer’s reach 9
63. Unbundling: the company maintains its price but removes or prices separately one or more elements that were part of the former offer
64. Escalator clauses: the company requires the customer to pay today’s price and all or part of any inflation increase that takes place before delivery
65. Delayed quotation pricing: the company does not set a final price until the product is finished or delivered
66. Anticipatory pricing- companies raise their prices by more than the cost increase, in anticipation of further inflation or government price controls18
78. Price discounts and allowances: most companies will adjust their list price and give discounts and allowances for early payment, volume purchases, and off-season buying
79. Promotional Pricing: companies can use several pricing techniques to stimulate early purchases or attract customers attention such as loss leader pricing, special event pricing, longer payment terms
80. Differentiated Pricing: companies often adjust their basic price in customer segment pricing (adult vs child), product form pricing (1 for $10, 2 for $15), location pricing and time pricing 21
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