Chapter 10 Developing Price Strategies and Programs 2/25/2019

Price is the amount of money and /or other items with utility needed to acquire a product 2/25/2019

Figure 16.1: Nine Price-Quality Strategies 2/25/2019

ktþaxagkñúgEdlman\T§iBlelIkarsMerccitþGMBIéfø (Internal Factors Affecting Pricing Decisions) rs;ran (Survival) éføTabedIm,IsþarcMNayGefr nigcMNayefrxøHedIm,IsßitkñúgGaCIvkmµ (Low Prices to Cover Variable Costs and Some Fixed Costs to Stay in Business.) R)ak;cMenjGtibrmaPøam²(Current Profit Maximization) eRCIserIséføEdlbegáItnUvR)ak;cMenjGtibrimaPøam² (Choose the Price that Produces the Maximum Current Profit, Etc.) eKalbMNgMarketing (Marketing Objectives) naMmuxGMBIGRtaTIpSar (Market Share Leadership) éføTabtamGaceTArYcedIm,IkøayCaGñknaMmuxGRtaTIpSar (Low as Possible Prices to Become the Market Share Leader.) PaBnaMmuxxagKuñNPaB (Product Quality Leadership) éføx<s;edIm,IsþarcMNayelIKuNPaBx<s;nig RsavRCavnigGPIvDÆn¾ (High Prices to Cover Higher Performance Quality and R & D.) 2/25/2019

Karpþl; cMNaynigéførbs;KURbECg TIpSar nigtMrUvkar (Market and Demand ) ktþaxageRkAEdlman\T§iBlenAelIkarsMerccitþGMBIéfø (External Factors Affecting Pricing Decisions) Karpþl; cMNaynigéførbs;KURbECg (Competitors’ Costs, Prices, and Offers) KtþaxageRkAdéTeTot (Other External Factors) lkçx½Nðesdækic©/ tMrUvkarGñkTijeTAlk;vij skmµPaBrdæaPi)al (Economic Conditions Reseller Needs Government Actions) 2/25/2019

éføx<s;(High Price) karKitBicarNasMxan;²kñúgkarkMnt;éfø (Major Considerations in Setting Price) TMrg; C TaMg 3 sMrab;karkMnt;éfø (The Three C’s Model for Price Setting) éføx<s;(High Price) enAkMritéføenHKµan lT§PaBtMrUvkareT (No possible demand at this price) éføTab(Low Price) enAkMritéføenHKµan lT§PaBcMenjeT (No possible profit at this price) éførbs;KURbECg nigéføplitplCMnYs (Competitors’ prices and prices of Substitutes) RbemIlemIlGtifiCnelI lkçN³edayELkrbs; Plitpl (Customers’ Assessment of unique Product Features) cMNay (Costs) 2/25/2019

Figure 10.1: Setting Pricing Policy 2/25/2019

Setting the Price Step 1: Selecting the pricing objective Survival Maximize current profits Maximize their market share Market-penetration pricing a relatively low initial price is established for a new product. Market is highly price-sensitive, and a low price stimulates market growth, Production and distribution costs fall within accumulated production experience Low price discourages actual and potential competition Demand is highly elastic 2/25/2019

Setting the Price Market- Skimming pricing: setting a relatively high initial price for new product. The market-skimming pricing is suitable under the following conditions: The new product has distinctive features. Demand is fairly inelastic The new product is protected from competition 2/25/2019

Figure 16.4: Inelastic and Elastic Demand Setting the Price Step 2: Determining Demand Price sensitivity Price elasticity of demand Figure 16.4: Inelastic and Elastic Demand 2/25/2019

Setting the Price Step 3: Estimating Cost Types of Cost and Levels of Production Fixed costs (overhead) Variable cost Total cost Average cost 2/25/2019

Setting the Price Step 4: Analyzing Competitors’ Cost, Prices, and Offers Firms should first consider the nearest competitor’s price. The firm must take the competitors’ cost The firm must offer contains positive differentiation feature. 2/25/2019

Setting the Price Step 5: Selecting a Pricing Method Markup Pricing Unit Cost = variable cost + (fixed cost/unit sales) Suppose a toaster manufacturer has the following VC per unit $10 FC 300,000 Expected unit cost 50,000 Unit cost=$10+($ 300,000/50,000)=$16 2/25/2019

Markup price= unit cost/ (1 – desired return on sales) Setting the Price Markup price Markup price= unit cost/ (1 – desired return on sales) Assume the manufacturer want to earn a 20% markup on sale So markup price is given by Markup price=$16/(1-0.2)=$20 2/25/2019

Everyday low pricing (EDLP) High-low pricing Going-Rate Pricing Setting the Price Value Pricing Everyday low pricing (EDLP) High-low pricing Going-Rate Pricing 2/25/2019

Setting the Price Step 6: Selecting the Final Price Psychological Pricing Odd pricing Influence of the Other Marketing Elements Brands with average relative quality but high relative advertising budgets charged premium prices Brands with high relative quality and high relative advertising budgets obtained the highest prices The positive relationship between high advertising budgets and high prices held most strongly in the later stages of the product life cycle for market leaders 2/25/2019

Adapting the Price Price Discounts and Allowances Cash discount Quantity discount Functional discount Seasonal discount Allowance 2/25/2019

Adapting the Price Promotional Pricing Loss-leader pricing Special-event pricing Cash rebates Low-interest financing Longer payment terms Warranties and service contracts Psychological discounting 2/25/2019

Adapting the Price Discriminatory Pricing Customer segment pricing Product-form pricing Image pricing Channel pricing Location pricing Time pricing 2/25/2019

Initiating and Responding to Price Changes Initiating Price Cuts Drive to dominate the market through lower costs 2/25/2019

Initiating and Responding to Price Changes Initiating Price Increases Cost inflation Anticipatory pricing Overdemand Delayed quotation pricing Escalator clauses Unbundling Reduction of discounts 2/25/2019

Initiating and Responding to Price Changes Reactions to Price Changes Customer Reactions Competitor Reactions Responding to Competitors’ Price Changes Maintain price Maintain price and add value Reduce price Increase price and improve quality Launch a low-price fighter line 2/25/2019