Marketing Management Dawn Iacobucci © 2010 South-Western, a part of Cengage Learning

Pricing Chapter 8

Pricing Pricing allows the company to obtain feedback from customers Pricing is easier to change than the other marketing mix variables Pricing sends a signal regarding the positioning and image of the brand

Pricing The 3 C’s impact pricing Company’s cost Customers’ sense of product’s value Competition’s price

Skimming vs. Penetration This slide refers to material on pp. 460-461.  Indicates place where slide “builds” to include the corresponding point (upon mouse click). 17

Pricing Strategies Low Cost-plus pricing: mark up above average cost Loss leader: sell below cost to bring in customers for other products Penetrate market: price low to attract volume Nearly predatory: price so low to discourage competitors

Pricing Strategies (continued) Medium Competitive: “What’s the going rate?” Price slightly below for perception of good value Price slightly above if you offer more benefits, or have any brand equity

Pricing Strategies (continued) High Skim market: price high for margins, not worrying about volume yet Prestige or status pricing: price high for image appeals Price high due to real quality differences or true rarity

Demand Profit increases when price increases; however, demand tends to decrease as price increases Need to find happy medium

Demand Increases… With increased customer’s desire With favorable perceptions of the product’s benefits or brand image If competitors’ brands aren’t favorable If there are few good substitutes If substitutes are priced even higher

Elasticity by Segment Elasticity can vary by customer segment Deal prone vs. Brand Loyal

Demand is More Elastic When… Customers don’t care about the purchase Customers don’t have strong preferences Item is a luxury rather than a necessity Many substitutes are available When household incomes are lower It is easier to compare prices

Price Has Many Strategy Dimensions This slide refers to material on pp. 452.  Indicates place where slide “builds” to include the corresponding point (upon mouse click). Price Flexibility Price Levels Over Product Life Cycle Key Pricing Policies Discounts & Allowances – To Whom & When Transportation Costs – Who Pays & How 6

Objectives Should Guide Strategy Planning for Price This slide refers to material on pp. 455.  Indicates place where slide “builds” to include the corresponding point (upon mouse click). 10

Objectives Should Guide Strategy Planning for Price This slide refers to material on pp. 456.  Indicates place where slide “builds” to include the corresponding point (upon mouse click). 11

Objectives Should Guide Strategy Planning for Price This slide refers to material on pp. 457.  Indicates place where slide “builds” to include the corresponding point (upon mouse click). 12

Discount Policies: Reductions from List Prices This slide refers to material on pp. 464-467.  Indicates place where slide “builds” to include the corresponding point (upon mouse click). Quantity (cumulative and non-cumlative) Seasonal (encourage buyers to buy sooner) From List Price Sale (reduce list price temporarily to encourage immediate buying) Cash (2/10 net 30) Trade (reductions in list price given to channel members that perform one or more marketing functions for the producer) 19

Allowance Policies – Off List Prices This slide refers to material on pp. 467-468.  Indicates place where slide “builds” to include the corresponding point (upon mouse click). Advertising (price reductions given to firms in channel to promote the supplier’s product locally) Stocking (slotting allowances to get shelf space) Common Types of Allowances Trade-Ins (price reduction to used products when similar new products are bought) Push Money (incentives to salesclerks to sell the targeted items) 20

List Price May Depend on Geographic Pricing Policies This slide relates to material on pp. 473-474. Indicates place where slide “builds” to include the corresponding point (upon mouse click). F.O.B. (free on broad—seller pays to have product loaded on a transportation vehicle at which time the title is transferred to buyer, who pays shipping and is responsible for the product at that point) Zone (delivered prices apply the average freight charge to all customers in same specified geographic area) Common Geographic Policies Freight Absorption (pays cost of shipping) Uniform Delivered (one price to all buyers)

Legality of Pricing Policies This slide relates to material on pp. 478-480. Indicates place where slide “builds” to include the corresponding point (upon mouse click). Legality of Pricing Policies Unfair Trade Practice Acts (puts a lower limit on prices) Dumping (pricing a product sold in a foreign market below the cost of producing it in its domestic market) Key Issues Price Fixing (competitors getting together to raise, lower, or stabilize prices) Phony List Prices (suggest that the price has been discounted from list)

“Proportionately Equal” Basis Price Discrimination--selling the same products to different buyers at different prices--if it injures competition. This slide refers to material on pp. 476.  Indicates place where slide “builds” to include the corresponding point (upon mouse click). Robinson-Patman Act “Like Grade & Quality” Key Issues “Proportionately Equal” Basis Cost Differences Meeting Competition 30

The Marketing Manager Must Consider Various Kinds of Costs This slide refers to material on pp. 488.  Indicates place where slide “builds” to include the corresponding point (upon mouse click). Total Variable Cost Total Fixed Cost Total Cost Average Variable Cost Average Cost Average Fixed Cost 11

Average Cost Pricing Is Common and Can Be Dangerous This slide refers to material on pp. 486-487.  Indicates place where slide “builds” to include the corresponding point (upon mouse click). 10

Breakeven Analysis Breakeven Number of units needed to sell to cover costs

Break-Even Analysis Can Evaluate Possible Prices This slide refers to material on pp. 491-493. 15

Marginal Analysis Considers Both Costs and Demand This slide refers to material on pp. 493-495. 18

More Demand-Oriented Methods This slide refers to material on pp. 499-502.  Indicates place where slide “builds” to include the corresponding point (upon mouse click). Value-in-Use Types of Demand-Oriented Pricing Auctions Sequential Reductions Reference Leader & Bait 23

More Demand-Oriented Methods This slide refers to material on pp. 502-504.  Indicates place where slide “builds” to include the corresponding point (upon mouse click). Value-in-Use Types of Demand-Oriented Pricing Prestige Auctions Sequential Reductions Demand-Backward Price Lining Reference Odd-Even Leader & Bait Psychological 25

Prices Ending in 9 Prices like $4.99 or $49.99 tend to be more attractive than $5 or $50. People read right to left; thus, the 4 is processed first and leaves an impression

Reference Prices People compare price to some referent, either an externally available price or an internally stored price

Bid Pricing and Negotiated Pricing Depend Heavily on Costs This slide refers to material on pp. 506-507.  Indicates place where slide “builds” to include the corresponding point (upon mouse click). New Prices for Every Job Ethical Issues Consider Demand Negotiated Prices 30

Study Question 1 Lee is the product manager for a software program sold by Company ABC. In evaluating the product, Lee determines that something just isn’t right with how the software program is marketed to potential customers, and he feels a change is necessary. Which of the following marketing mix variables is easiest for Lee to change? a. Promotion b. Place c. Price d. Product C

Study Question 2 Company XYZ manufactures quality widgets, but does not invest a significant effort in marketing the company or its widgets. If Company XYZ were to develop a _____, one of the benefits it would realize is the ability to charge premium prices. a. company b. marketing strategy c. product d. brand D

Profit maximization occurs when marginal revenue equals Study Question 3 Profit maximization occurs when marginal revenue equals a. marginal profit. b. marginal cost. c. marginal sale. d. none of these. B

d. Price discrimination Study Question 4 _____ is the idea is that the price (on the sticker) is much higher than the referent. a. Price fixing b. Predatory pricing c. Sticker shock d. Price discrimination C

Study Question 5 An agreement between two or more firms on what price to charge, which reduces the usual effects of competition with respect to driving prices and profits down, is called a. predatory pricing. b. deceptive pricing. c. vertical price fixing. d. price fixing. D

Video http://www.cengage.com/marketing/book_content/0324784430_iacobucci/videos/ch08.html D