11-1 Chapter 11 Pricing Concepts and Strategies: Establishing Value

11-2 LO1 Explain what price is and its importance in establishing value in marketing LO2 Illustrate how the 5 C’s – company objectives, customers, costs, competition, and channel members – influence pricing decisions LO3 Describe various pricing methods and strategies that are used in marketing LO4 Identify pricing tactics targeted to channel members and consumers LO5 Summarize the legal and ethical issues involved in pricing LEARNING OBJECTIVES Chapter 11: Pricing Concepts and Strategies: Establishing Value

11-3 GROUPON – THE ONE-TWO PUNCH! LO1, LO3, LO4 Reach a wide audience of interested customers that can’t ignore the deal A cost-effective way to bring in new customers But are consumers suffering from deal-fatigue?

11-4 A strategic opportunity to create value Not an after thought to the rest of the marketing mix Pricing signals quality or a lack of quality LO1 THE IMPORTANCE OF PRICING

11-5 Price is the only element in the marketing mix that generates revenue Price is usually ranked as one of the most important factors in purchase decisions LO1 THE ROLE OF PRICE IN THE MARKETING MIX

11-6 The key to successful pricing is to match the product or service with the consumer’s _______________. A)income level B)value perceptions C)shopping habits D)brand consciousness LO1 Test Your Knowledge

11-7 LO2 THE FIVE C’S OF PRICING

11-8 Profit Orientation - Maximize profits - Target return pricing - Target profit pricing Sales Orientation Competitor Orientation Customer Orientation LO2 1 ST C: COMPANY OBJECTIVES

11-9 The most important C!!! It’s all about understanding consumers reactions to different prices Consumers want value Price is half of the value equation LO2 2 ND C: CUSTOMERS

11-10 Knowing demand curves enables to see relationship between price and demand DEMAND CURVES & PRICING LO2

11-11 LO2 PRICE ELASTICITY OF DEMAND How do consumers respond to price increases or decreases? This is measured by the price elasticity of demand

11-12 Meet Pete, college student on a budget Old Spice Sport Deodorant user At the store he notices that Old Spice is more expensive Pete decides to give another brand a try & save money LO2 FACTORS INFLUENCING PRICE ELASTICITY OF DEMAND: INCOME & SUBSTITUTION EFFECTS

11-13 Meet Kendra, self-supporting college student Buys a new printer on sale for a great price Learns it requires special ink cartridges* that cost more than the printer *complementary products LO2 FACTORS INFLUENCING PRICE ELASTICITY OF DEMAND: CROSS-PRICE ELASTICITY EFFECT

11-14 Variable Costs Vary with production volume Fixed Costs Unaffected by production volume Total Cost Sum of variable and fixed costs LO2 3 RD C: COSTS

11-15 LO2 BREAK-EVEN ANALYSIS & DECISION MAKING

11-16 LO2 BREAK-EVEN POINT

11-17 LO2 4 TH C: COMPETITION

11-18 Trade-off between luxury & affordability is tricky! Private sale online sites such as Gilt, RueLaLa, and HauteLook promise a solution Limited-time sales of high fashion brands Lasts 48 hours or until the item sells out Is the reference price true? Or has it been inflated so the discount looks better? LO2 ETHICAL DILEMMA 11.1: IS IT REALLY 45% OFF?

11-19 Manufacturers, wholesalers and retailers can have different perspectives on pricing strategies Manufactures must protect against grey market transactions LO2 5 TH C: CHANNEL MEMBERS

11-20 The Internet - Increased price sensitivity - Growth of online auctions Economic Factors LO2 OTHER INFLUENCES ON PRICING

11-21 LO3 PRICING METHODS & STRATEGIES PRICING STRATEGIES COST-BASED COMPETITOR-BASED VALUE-BASED

11-22 Cost-base pricing methods start with cost All costs calculated on a per unit basis Assumes costs don’t vary for different levels of production LO3 COST-BASED METHODS

11-23 Set prices to signal information of how product compares with competitors Premium pricing LO3 COMPETITOR-BASED METHODS

11-24 Setting prices that focus on the overall value of the product Consumer perceptions LO3 VALUE-BASED METHODS

11-25 Price skimming Market penetration pricing LO3 NEW PRODUCT PRICING STRATEGIES

11-26 Psychological pricing strategies Reference Pricing Everyday low pricing (EDLP ) Odd prices Price- quantity relationship LO3 PSYCHOLOGICAL FACTORS AFFECTING VALUE- BASED PRICING STRATEGIES

11-27 LO3 CONSUMERS’ USE OF REFERENCE PRICES The price against which buyers compare the actual selling price of the product and that facilitates their evaluation process

11-28 How do consumers use reference pricing when shopping for cars? How does this ad help the consumer? LO3 REFERENCE PRICES

11-29 Which of the following is a new product pricing strategy ?: A)Price skimming B)Reference pricing C)Odd-pricing D)Every-day-low pricing LO3 Test Your Knowledge

11-30 Odd prices may be so traditional that sellers are afraid to round them off May suggest a good deal May suggest low quality LO3 ODD PRICES

11-31 versus Everyday low pricing (EDLP) High/low pricing Value is created in different ways Value is created in different ways EDLP saves search costs of finding lowest overall prices High/low provides the thrill of the chase for the lowest price LO3 EVERYDAY LOW PRICING (EDLP)

11-32 RELIES ON THE PROMOTION OF SALES, DURING WHICH PRICES ARE TEMPORARILY REDUCED TO ENCOURAGE PURCHASES HIGH-LOW PRICING LO3

11-33 LO4 PRICING TACTICS - CONSUMERS

11-34 Marketers establish a price floor & a price ceiling & set prices in between Allows for easy comparison LO4 PRICE LINING

11-35 Encourage sales of slow moving items Encourage stock up Encourage trial of new brand Incentive to purchase LO4 PRICE BUNDLING

11-36 Enticing consumers into the store with the popular aggressively priced item and hoping they will pick up other items while shopping LO4 LEADER PRICING

11-37 Coupons & rebates Markdowns Quantity discounts for consumers LO4 CONSUMER PRICE REDUCTIONS

11-38 An integral component of high/low pricing strategy Enable retailers to get rid of slow moving or obsolete merchandise Used to generate store traffic. LO4 MARKDOWNS

11-39 Size discount The more you buy the cheaper the unit cost LO4 QUANTITY DISCOUNTS FOR CONSUMERS

11-40 Coupons Retailer handles Rebate Manufacturer issues LO4 COUPONS & REBATES

11-41 Firms typically use all of the following EXCEPT _____________to offer consumers price reductions. A)quantity discounts B)seasonal discounts C)coupons & rebates D)markdowns LO4 Test Your Knowledge

11-42 LO4 BUSINESS-TO-BUSINESS PRICING TACTICS & DISCOUNTS

11-43 Designed to spur buyers into purchasing merchandise early LO4 SEASONAL DISCOUNTS

11-44 Reduced invoice cost if buyer pays prior to the end of the discount period Encourages buyers to pay before the discount period ends Seller benefits either way LO4 CASH DISCOUNTS

11-45 Lowers the final cost in return for specific behaviour Advertising allowance Listing allowance LO4 ALLOWANCES

11-46 Cumulative quantity discount Noncumulative quantity discount LO4 QUANTITY DISCOUNTS

11-47 Addresses the impact of shipping, which is often a major cost for manufacturers LO4 UNIFORM DELIVERED VS. GEOGRAPHIC PRICING

11-48 Deceptive or Illegal Price Advertising Predatory Pricing Price Discrimination Price Fixing LO5 LEGAL & ETHICAL ASPECTS OF PRICING