10-1 MARKETING MANAGEMENT Pricing

14-2 Chapter Questions How do consumers evaluate prices? How should a company set prices initially for products or services? How should a company adapt prices to meet varying circumstances and opportunities? When should a company change prices? How should a company respond to a competitor’s price challenge?

14-3 Whirlpool’s Duet combo is nearly four times the price of comparable models

14-4 Common Pricing Mistakes Determine costs and add traditional industry margins Failure to revise price to capitalize on market changes Setting price independently of the rest of the marketing mix Failure to vary price by product item, market segment, distribution channels, and purchase occasion

14-5 Consumer Psychology and Pricing Reference Prices Price-quality inferences Price endings Price cues

14-6 Examples of Price Cues “Left to right” pricing ($299 versus $300) Odd number discount perceptions Even number value perceptions Ending prices with 0 or 5 “Sale” written next to price

14-7 When to Use Price Cues Customers purchase item infrequently Customers are new Product designs vary over time Prices vary seasonally Quality or sizes vary across stores

14-8 Step 1: Determine your Objective Survival Maximum current profit Maximum market share Maximum market skimming Product-quality leadership

14-9 Price Tiers in the Ice Cream Market

14-10 Step 2: Determine Demand Price Sensitivity Estimating Demand Curves Price Elasticity of Demand

14-11 Inelastic and Elastic Demand

14-12 Step 3: Estimate Costs Types of Costs Target Costing Accumulated Production Activity-Based Cost Accounting

14-13 Cost Terms and Production Fixed costs Variable costs Total costs Average cost Cost at different levels of production

14-14 Cost per Unit based on Production

14-15 Step 4: Analyze Competition Reality check! What are your competitors charging? Compare features or service. Is your price reasonable and competitive?

14-16 Step 5: Select a Pricing Method Markup pricing Target-return pricing Perceived-value pricing Value pricing Going-rate pricing Auction-type pricing

14-17 Break-Even Chart

14-18 Auction-Type Pricing? English auctions Dutch auctions Sealed-bid auctions

14-19 Step 6: Select the Final Price Impact of other marketing activities Company pricing policies Gain-and-risk sharing pricing Impact of price on other parties

14-20 Price-Adaptation Strategies Geographical Pricing Discounts/Allowances Differentiated Pricing Promotional Pricing

14-21 Example of Profit Before and After a Price Increase