Assignment 2 marketing management

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Chpt14_Pricing.ppt

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14
Developing Pricing Strategies and Programs

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?

Synonyms for Price

Rent
Tuition
Fee
Fare
Rate
Toll
Premium

Special assessment
Bribe
Dues
Salary
Commission
Wage
Tax

The Internet Changes the
Pricing Environment –

By Providing Information

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

Consumer Psychology
and Pricing

Reference prices
Price-quality inferences
Price endings
Price cues

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

Tiers in Pricing

Steps in Setting Price

Select the price objective
Determine demand
Estimate costs
Analyze competitor price mix
Select pricing method
Select final price

Step 1: Selecting the Pricing Objective

Survival
Maximum current profit
Maximum market share
Maximum market skimming
Product-quality leadership

Step 2: Determining Demand

Price sensitivity
Estimate demand curves
Price elasticity of demand

Figure 14.1 Inelastic and
Elastic Demand

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
Expenditure is a smaller part of buyer’s total income
Expenditure is small compared to the total cost
Part of the cost is paid by another party
Product is used with previously purchased assets
Product is assumed to have high quality and prestige
Buyers cannot store the product

Step 3: Estimating Costs

Types of costs
Accumulated production
Activity-based cost accounting
Target costing

Cost Terms and Production

Fixed costs
Variable costs
Total costs
Average cost
Cost at different levels of production

Target Costing

Figure 14.4 The Three Cs Model for Price-Setting

Step 5: Selecting a Pricing Method

Markup pricing
Target-return pricing
Perceived-value pricing
Value pricing
Going-rate pricing
Auction-type pricing

Figure 14.5 Break-Even Chart for Determining Target-Return Price and Break-Even Volume

Auction-Type Pricing

English

Dutch

Sealed-Bid

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

Geographical Pricing

Pricing varies by location

Price Discounts and Allowances

Discount
Quantity discount
Functional discount
Seasonal discount
Allowance

Promotional Pricing Tactics

Loss-leader pricing
Special-event pricing
Cash rebates
Low-interest financing
Longer payment terms
Warranties and service contracts
Psychological discounting

Traps in Price Cutting Strategies

Low-quality trap
Fragile-market-share trap
Shallow-pockets trap
Price-war trap

Should We Raise Prices?

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

For Review

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?