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23/12/2014
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Developing PricingStrategies and Programs
Marketing Management, 13th ed
14
Copyright © 2009 Pearson Education, Inc. Publishing as Prentice Hall 14-2
Chapter Questions
• How do consumers process and evaluateprices?
• How should a company set prices initially forproducts or services?
• How should a company adapt prices to meetvarying circumstances and opportunities?
• When should a company initiate a pricechange?
• How should a company respond to acompetitor’s price challenge?
Copyright © 2009 Pearson Education, Inc. Publishing as Prentice Hall 14-3
Gillette Commands aPrice Premium
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Copyright © 2009 Pearson Education, Inc. Publishing as Prentice Hall 14-4
Synonyms for Price
• Rent• Tuition• Fee• Fare• Rate• Toll• Premium• Honorarium
• Special assessment• Bribe• Dues• Salary• Commission• Wage• Tax
Copyright © 2009 Pearson Education, Inc. Publishing as Prentice Hall 14-5
Common Pricing Mistakes
• Determine costs and take traditional industrymargins
• Failure to revise price to capitalize on marketchanges
• Setting price independently of the rest of themarketing mix
• Failure to vary price by product item, marketsegment, distribution channels, andpurchase occasion
Copyright © 2009 Pearson Education, Inc. Publishing as Prentice Hall 14-6
Consumer Psychologyand Pricing
Reference Prices
Price-quality inferences
Price endings
Price cues
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Table 14.1 Possible ConsumerReference Prices
• “Fair price”• Typical price• Last price paid• Upper-bound price
• Lower-bound price• Competitor prices• Expected future
price• Usual discounted
price
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Table 14.2 Consumer Perceptions vs.Reality for Cars
Overvalued Brands• Land Rover• Kia• Volkswagen• Volvo• Mercedes
Undervalued Brands• Mercury• Infiniti• Buick• Lincoln• Chrysler
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Tiffany’sPrice-Quality Relationship
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Price Cues
• “Left to right” pricing ($299 vs. $300)• Odd number discount perceptions• Even number value perceptions• Ending prices with 0 or 5• “Sale” written next to price
Copyright © 2009 Pearson Education, Inc. Publishing as Prentice Hall 14-11
When to Use Price Cues
• Customerspurchase iteminfrequently
• Customers are new• Product designs
vary over time• Prices vary
seasonally• Quality or sizes vary
across stores
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Steps in Setting Price
Select the price objective
Determine demand
Estimate costs
Analyze competitor price mix
Select pricing method
Select final price
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Copyright © 2009 Pearson Education, Inc. Publishing as Prentice Hall 14-13
Step 1: Selecting the Pricing Objective
• Survival• Maximum current
profit• Maximum market
share• Maximum market
skimming• Product-quality
leadership
Copyright © 2009 Pearson Education, Inc. Publishing as Prentice Hall 14-14
Step 2: Determining Demand
Price Sensitivity
EstimatingDemand Curves
Price Elasticityof Demand
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Figure 14.2 Inelasticand Elastic Demand
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Table 14.3 Factors Leading to LessPrice Sensitivity
• The product is more distinctive• Buyers are less aware of substitutes• Buyers cannot easily compare the quality of substitutes• The expenditure is a smaller part of buyer’s total income• The expenditure is small compared to the total cost of
the end product• Part of the cost is paid by another party• The product is used with previously purchased assets• The product is assumed to have high quality and
prestige• Buyers cannot store the product
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Step 3: Estimating Costs
Types of Costs
Target Costing
AccumulatedProduction
Activity-BasedCost Accounting
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Cost Terms and Production
• Fixed costs• Variable costs• Total costs• Average cost• Cost at different
levels ofproduction
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Figure 14.4 Cost per Unit as aFunction of Accumulated Production
Copyright © 2009 Pearson Education, Inc. Publishing as Prentice Hall 14-20
9 Lives Uses Target Costing
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Step 5: Selecting a Pricing Method
• Markup pricing• Target-return pricing• Perceived-value
pricing• Value pricing• Going-rate pricing• Auction-type pricing
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Figure 14.6 Break-Even Chart
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Auction-Type Pricing
English auctions
Dutch auctions
Sealed-bid auctions
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Step 6: Selecting the Final Price
• Impact of othermarketing activities
• Company pricingpolicies
• Gain-and-risk sharingpricing
• Impact of price onother parties
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Price-Adaptation Strategies
Geographical Pricing
Discounts/Allowances
Differentiated Pricing
Promotional Pricing
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Price-Adaptation Strategies
Countertrade• Barter• Compensation deal• Buyback
arrangement• Offset
Discounts/ Allowances• Cash discount• Quantity discount• Functional discount• Seasonal discount• Allowance
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Promotional Pricing Tactics
• Loss-leader pricing• Special-event pricing• Cash rebates• Low-interest financing• Longer payment terms• Warranties and service
contracts• Psychological
discounting
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Differentiated Pricing
• Customer-segmentpricing
• Product-form pricing• Image pricing• Channel pricing• Location pricing• Time pricing• Yield pricing
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Table 14.6 Profits Before and After aPrice Increase
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Increasing Prices
Delayed quotation pricing
Escalator clauses
Unbundling
Reduction of discounts
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Brand Leader Responses toCompetitive Price Cuts
• Maintain price• Maintain price and add value• Reduce price• Increase price and improve quality• Launch a low-price fighter line
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Marketing Debate
Is the right price a fair price?
Take a position:1. Prices should reflect the value thatconsumers are willing to pay.
or
2. Prices should primarily just reflect the costinvolved in making a product.
Copyright © 2009 Pearson Education, Inc. Publishing as Prentice Hall 14-33
Marketing Discussion
Think of all the pricing methodsdescribed in the chapter.
As a consumer, which pricing methoddo you personally prefer to deal with?
Why?