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PricingChapter.ppt

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Chapter 22
Setting Prices

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Objectives

Describe six major stages of process to establish prices
Explore issues in developing pricing objectives
Understand importance of identifying target market’s evaluation of price
Examine how marketers analyze competitors’ prices
Describe bases for setting prices
Explain types of pricing strategies

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Development
of Pricing Objectives

Pricing objectives – goals that describe what a firm wants to achieve through pricing

Business Planning- Pricing

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Stages For Establishing Prices

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Pricing Objectives And
Typical Actions To Achieve Them

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Pricing Objectives

Survival
Profit
Return on Investment (ROI)
Market Share
Cash Flow
Status Quo
Product Quality

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High-quality products are usually priced
to reflect the quality level

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Assessment of the Target Market’s Evaluation of Price

Price depends on:
Type of product
Type of target market
Purchase situation (e.g: price of concessions at movies)

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Examples Of Perceptions
Of Product Value

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Evaluation of
Competitors’ Prices

Regular function of marketing research
Importance of customer view of pricing and marketing mix variables
Pricing above competition – creates an exclusive image
Pricing below competition – gains market share

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Some prices are set higher than the competition to create an exclusive image

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FIJI ® and all other trademarks, copyrights and intellectual property used herein are

the property of FIJI Water Company LLC or its affiliates." Used by permission

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Selection of a Basis of Pricing

Cost
Demand
Competition
Other

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Cost Based Pricing

Cost-based pricing – a dollar amount to the cost of the product
Cost-plus pricing – adding a specified dollar amount to the seller’s costs
Markup – Adding to the cost of the product a predetermined percentage of that cost

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Markup as % of Cost

Markup

Cost

33.3 %

Markup as %

of Selling Price

Markup

Selling Price

25.0 %

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Demand-Based Pricing

Customers pay a higher price when demand for the product is strong and a lower price when demand is weak

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Non-Price Factors
Affecting Demand

Product
Quality
Range
Nature- essential/luxury
Substitutes
Support
Service at point of sale
& after
Advertising/promotion
Distribution Methods

Market
Degree of competition
Competitor action/reaction
General economic conditions

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“Demand based pricing”, N. Coulthurst, 4/3/02,
http://www.accaglobal.com/publications/studentaccountant/404831

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Point-of-sale
service affects demand

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Reprinted with permission of Lowe's Companies

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Competition-Based Pricing

Pricing influenced primarily by competitors’ prices
method increases when:
competing products are homogeneous
organization is serving markets in which price
is a key consideration

www.zillow.com

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Selection of a Pricing Strategy

Differential Pricing – different prices to different buyers for the same product
New-Product Pricing
Product-Line Pricing – establishing prices of multiple products within a product line
Psychological Pricing – influence customer perception
to make a product’s price attractive
Professional Pricing – fees set by experienced people
in particular field
Promotional Pricing

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Common Pricing Strategies

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Differential Pricing Techniques

Negotiated – final price established through buyer/seller bargaining
Secondary-market – one price for primary target market and different price for another
Periodic discounting – systematic temporary price reduction
Random discounting – unsystematic temporary
price reduction

Poll and comments on differential pricing at Amazon.com.

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Steps In
Developing New Product Pricing

Develop Marketing Strategy

Make Marketing Mix Decisions

Estimate Demand Curve

Calculate Cost

Understand Environmental Factors

Set Pricing Objectives

Determine Pricing

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NetMBA, “Pricing Strategy”, 2005,
http://www.netmba.com/marketing/pricing/

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New-Product Pricing

Price skimming – charging the highest possible price that buyers who most desire the product will pay
Penetration pricing – prices set below competing brands to penetrate market and gain market share quickly

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Product-Line Pricing Strategies

Captive – basic product in a product line low while related items higher
Premium – pricing highest-quality product higher than other models

Bait – low pricing on one item in line with intention of selling higher-priced item in the line
Price Lining – limited number of prices for selected lines of merchandise

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For Premium Pricing,
Engage The Emotions

Taking Care of Me - overstressed people want to pamper selves

Connect with Friends & Family - serious money to nurture family, romantic getaways, cosmetic surgery, etc.

Questing - consumers appreciate adventure

Individual Style - personal taste, differentiate self from others

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iBizResources, “For Premium Pricing, engage the Emotions”, 2006,
http://www.familybusinessstrategies.com/articles4/041404f.html

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Psychological
Pricing Techniques

Reference pricing – moderate pricing positioned next to a more expensive brand
Bundles pricing – packaging multiple products
to be sold at a single price
Multiple-unit pricing – packaging together
two or more identical products to be sold at a
single price
Everyday low prices (EDLP) – pricing products low on a consistent basis

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More Psychological
Pricing Techniques

Odd-even pricing – ending the price with a certain number to influences buyers’ perceptions
Customary pricing – on the basis of tradition
Prestige pricing – setting prices at a high level to convey prestige

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Consumers associate higher prices with higher quality

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Reprinted with permission of Mannington Mills, Inc.

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Price Of Adult One-Day
Passport To Walt-Disney World

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USA Today Snapshots, “The Price of Amusement”, May 12-14, 2006, p. A1.

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Sample Prestige Product Prices

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Concept of Professional Pricing

Professional pricing carries the idea that professional have an ethical responsibility not to overcharge customers

Aetna Physician Pricing Transparency

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Types Of
Promotional Pricing

Price Leader- firm prices a few products below the usual markup, near cost, or below cost
Special-Event- advertised sales or price-cutting linked to a holiday, a season, or an event
Comparison Discounting- price is set at a specific level and simultaneously compares it with a high price

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Special events are often seasonal
and employ special-event pricing

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Reprinted with permission of Montage, Inc.

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Determination of
Price: Pricing Strategy

Yields a certain price- may need refining
Helps in setting final price
In absence of government price controls, remains flexible and convenient to adjust the marketing mix

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