Weekly Discussion

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Set Pricing Objectives

Clear statement of pricing objectives is given

Pricing objectives guide the pricing strategy and should be designed to support the overall marketing strategy

Efforts to set prices must be coordinated with other functional areas

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Evaluating Product and Price Relationships, 1

Considerations for marketers

What value the product has for customers

How price will influence product positioning

Product could be priced:

Relatively high for a product class because it offers value in the form of high quality, special features, or prestige

At about average for the product class because it offers value in the form of good quality for a reasonable price

Relatively low for a product class because it offers value in the form of acceptable quality at a low price

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Evaluating Product and Price Relationships, 2

Value pricing: Setting prices so that targeted customers will perceive products to offer greater value than competitive offerings

Price elasticity: Measure of consumers’ price sensitivity that is estimated by dividing relative changes in the quantity sold by relative changes in price

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Estimating Costs and Other Price Limitations

Costs to produce and market products provide a lower bound for pricing decision and a baseline from which to compute profit potential

Other price limitations

Government regulations

Prices charged by competitors for similar and substitute products

Competitive reactions that could influence the price of a new product or a price change in an existing one

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Analyzing Profit Potential

Discounts for purchasing a large number of units

Quantity discounts

Price reduction offered to channel members in exchange for performing various promotional activities

Promotional allowances

Payments to retailers to get them to stock items on their shelves, a common tactic for getting new products into stores

Slotting allowances

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Setting Initial Price Structure

Done after all of the supply, demand, and environmental factors have been considered by marketers

Price structure takes into account:

Price to various channel members

Recommended price to final consumers or organizational buyer

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Changing Price as Needed

Reasons for changing initial price structure

Channel members may bargain for greater margins

Competitors may lower their prices

Costs may increase with inflation

In the short term, discounts and allowances have to be larger or more frequent than planned

In the long term, price structures tend to increase for most products

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APPENDICES

Demographic Factors, Appendix

There are 5 small rectangular boxes partially overlapping 5 large rectangular boxes. Each pair of small and large boxes is placed one below the other. The small boxes contain labels. The large boxes are empty. In the first pair of boxes, the small box is labeled number of potential buyers. In the second pair of boxes, the small box is labeled location of potential buyers. In the third pair of boxes, the small box is labeled position of potential buyers. In the fourth pair of boxes, the small box is labeled expected consumption rates of potential buyers. In the fifth pair of boxes, the small box is labeled economic strength of potential buyers.

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Types of Psychological Pricing Strategies, Appendix

There are 3 small rectangular boxes partially overlapping 3 large rectangular boxes. Each pair of small and large boxes is placed one below the other. The content in the large box explains the term provided in the small box. In the first pair of boxes, the small box is labeled prestige pricing. The content in the large box reads involves charging a high price to create a signal that the product is exceptionally fine. In the second pair of boxes, the small box is labeled odd pricing. The content in the large box reads setting prices at one or a few cents or dollars below a round number in order to create the perception that the price is low. In the third pair of boxes, the small box is labeled bundle pricing. The content in the large box reads involves selling several products together at a single price in order to suggest a good value.

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Government Regulations, 1, Appendix

There are 2 small rectangular boxes partially overlapping 2 large rectangular boxes. Each pair of small and large boxes is placed one below the other. The content in the large box contains sub-points, which explain the term provided in the small box. In the first pair of boxes, the small box is labeled price fixing. The content in the large box has two sub-points. The first sub-point reads competitors in a market collude to set the final price of a product. The second sub-point reads illegal under the Sherman Antitrust Act and the Federal Trade Commission Act. In the second pair of boxes, the small box is labeled deceptive pricing. The content in the large box has two sub-points. The first sub-point reads involves price deals that mislead the consumer. The second sub-point reads Illegal under Section 5 of the Federal Trade Commission Act.

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Government Regulations, 2, Appendix

There are 2 small rectangular boxes partially overlapping 2 large rectangular boxes. Each pair of small and large boxes is placed one below the other. The content in the large box explains the term provided in the small box. In the first pair of boxes, the small box is labeled price discrimination. The large box has two points. The first point reads charges different prices to different buyers for goods of like grade and quality. The second point reads illegal under the Robinson-Patman Act if it lessens or is deemed injurious to competition. In the second pair of boxes, the small box is labeled predatory pricing. The large box has two points. The first point reads involves charging a very low price for a product with the intent of driving competitors out of business. The second point reads illegal under the Sherman Act and Federal Trade Commission Act.

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Figure 11.1: A General Pricing Model, Appendix

There are six rectangular boxes placed one below the other. To denote a process, downward pointing arrows are placed at the bottom of each of the boxes, except for the last one. The content in the first box reads set pricing objectives. The content in the second box reads evaluate product and price relationships. The content in the third box reads estimate costs and other price limitations. The content in the fourth box reads analyze profit potential. The content in the fifth box reads set initial price structure. The content in the fifth box reads change price as needed.

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Analyze Profit Potential, Appendix

There are 3 small rectangular boxes partially overlapping 3 large rectangular boxes. Each pair of small and large boxes is placed one below the other. The content in the large box explains the term provided in the small box. In the first pair of boxes, the small box is labeled quantity discounts. The content in the large box reads discounts for purchasing a large number of units. In the second pair of boxes, the small box is labeled promotional allowances. The content in the large box reads price reduction offered to channel members in exchange for performing various promotional activities. In the third pair of boxes, the small box is labeled slotting allowances. The content in the large box reads payments to retailers to get them to stock items on their shelves, a common tactic for getting new products into stores.

Jump back to Analyze Profit Potential

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