Chapter 14: Developing Pricing Strategies and Programs

1. CHAPTER 14: DEVELOPING PRICING STRATEGIES AND PROGRAMS 10 Questions from Chapter 14 Antonieta Manalang Ateneo Graduate School of Business

3. Revising price to capitalize on market changes

4. Setting price independently of the rest of the marketing mix

5. Standardizing price by product item, market segment, distribution channels, and purchase occasion

6. Setting various price objectives2

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

9. Revising price to capitalize on market changes

10. Setting price independently of the rest of the marketing mix

11. Standardizing price by product item, market segment, distribution channels, and purchase occasion

12. Setting various price objectives4

14. Price ending

15. Reference Price

16. Lower Bound Price

17. Price-quality inference5

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

20. Price ending

21. Reference Price

22. Lower Bound Price

23. Price-quality inference7

25. Maximum current profit: price is set to maximize current profit, cash flow, or ROI

26. Maximum Market Skimming: Prices start low and increased overtime

27. Maximum sales growth : low price is set assuming that marketing is price sensitive

28. Marketing penetration pricing: Goal is high sales volume8

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

31. Maximum current profit: price is set to maximize current profit, cash flow, or ROI

32. Maximum Market Skimming: Prices start low and increased overtime

33. Maximum sales growth : low price is set assuming that marketing is price sensitive

34. Marketing penetration pricing: Goal is high sales volume10

36. Price-quality inferences

37. Price Cues

40. Price-quality inferences

41. Price Cues

43. Buyers are less price sensitive when there are few are no substitutes

44. Customers readily notice the price increases

45. Customers easily changed their buying habits

46. Customers think that higher prices for the items they buy infrequently are not justified14

48. When there are few are no substitutes or competitors

49. They do not notice the price increases

50. They are slow to changed their buying habits

51. The higher prices are justified15

53. Buyers are less price sensitive when there are few are no substitutes

54. Customers readily notice the price increases

55. Customers easily changed their buying habits

56. Customers think that higher prices for the items they buy infrequently are not justified16

58. Unbundling

59. Escalator clauses

60. Delayed quotation pricing

61. Anticipatory pricing17

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

68. Unbundling

69. Escalator clauses

70. Delayed quotation pricing

71. Anticipatory pricing19

73. Price discounts and allowances

74. Promotional Pricing

75. Delayed quotation pricing

76. Differentiated Pricing20

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

82. Price discounts and allowances

83. Promotional Pricing

84. Delayed quotation pricing

85. Differentiated Pricing22

87. Reducing the number of sizes and models offered

88. Shrinking the amount of product

89. Creating new economy brands

90. Reducing or removing product features23

92. Increasing the number of sizes and models offered

93. Shrinking the amount of product

94. Creating new economy brands

95. Reducing or removing product features24

97. Target-return Pricing

98. Markup Pricing

99. Going Rate Pricing

100. Value Pricing25

102. Target-return Pricing: the firm determines the price that would yield its target rate of return on investment (ROI)

103. Markup Pricing: adding a standard markup to the product’s cost

104. Going Rate Pricing: price is based on competitor’s prices, charging the same, more, or less than major competitor(s)

105. Value Pricing: charging low price for a high quality offering26

107. Target-return Pricing

108. Markup Pricing

109. Going Rate Pricing

110. Value Pricing27

112. Brands with average relative quality but high relative advertising budgets cant charge higher prices

113. Price is a major factor when customer buys a product

114. Customer support is important for buyers

115. Brands with low quality and low advertising charged the lowest prices28

117. Brands with average relative quality but high relative advertising budgets can charge higher prices

118. Price is NOT a major factor when customer buys a product. Only 19% cared about the price

119. Customer support is important for buyers

120. Brands with low quality and low advertising charged the lowest prices29

122. Brands with average relative quality but high relative advertising budgets cant charge higher prices

123. Price is a major factor when customer buys a product

124. Customer support is important for buyers

125. Brands with low quality and low advertising charged the lowest prices30