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Pricing Strategies Chapter 11

Price Defined The amount of money charged for a product or service that consumers exchange for the benefits of having or using the product or service. The amount of money charged for a product or service that consumers exchange for the benefits of having or using the product or service. Most flexible element in marketing mix Most flexible element in marketing mix Major impact on store/product/service image Major impact on store/product/service image

What else is price? Value Value Product power to stimulate exchange Product power to stimulate exchange Barter Barter Money-less exchange Money-less exchange Other Terms: Rent Fee Donation Toll Honorarium Tuition

Price as a Marketing Mix variable Price Competition versus Nonprice Competition John Deere uses nonprice competition by emphasizing quality and workmanship

The Fundamentals of Pricing Strategy 1. Set pricing objectives 2. Establish importance to target market 3. Understand demand 4. Understand costs 5. Determine strategy $ d s TM ₤ П

Product objectives Distribution objectives Promotion objectives Price objectives MarketingobjectivesMarketingobjectives CompanyobjectivesCompanyobjectives Actual Actual prices prices Actual Actual prices prices PricingstrategiesandpoliciesPricingstrategiesandpolicies Relating Pricing objectives to Marketing objectives

Price Elasticity of Demand Inelastic demand: when a percentage change in price causes a much smaller percentage change in demand Inelastic demand: when a percentage change in price causes a much smaller percentage change in demand Products that have few, if any substitutes Products that have few, if any substitutes Consumption is necessary Consumption is necessary Pricing strategy is to raise prices to earn more profits Pricing strategy is to raise prices to earn more profits Price elasticity: a measure of the sensitivity of demand to changes in price Price elasticity: a measure of the sensitivity of demand to changes in price Elastic demand: when a percentage change in price causes a much larger percentage change in demand Elastic demand: when a percentage change in price causes a much larger percentage change in demand Products that have many substitutes Products that have many substitutes Consumption is discretionary Consumption is discretionary Pricing strategy normally to lower price to sell more Pricing strategy normally to lower price to sell more

Price Elasticity of Demand

Price Adjustments Cash Discounts Cash Discounts Trade Discounts Trade Discounts Quantity Discounts Quantity Discounts Seasonal Discounts Seasonal Discounts Chain Discounts Chain Discounts Promotional Allowances Promotional Allowances Seasonal discounts are a common marketing strategy to encourage purchases

Pricing Strategies Differential Pricing strategies Variable pricing Variable pricing Segment pricing Segment pricing Skimming Skimming Periodic discounting Periodic discounting Random discounting Random discounting Competitive Pricing strategies Meeting the competition Below the competition Price leadership Following the leader Penetration pricing

Pricing Strategies Product-line Pricing strategies Captive pricing Captive pricing Leader pricing Leader pricing Bait pricing Bait pricing Price lining Price lining Price bundling Price bundling Multiple-unit pricing Multiple-unit pricing Psychological and image Pricing strategies Reference pricing Odd and even pricing Prestige pricing

Marketing Math

1.Markup on Selling Price: = % markup on selling price Amount added on Selling price Establishing the Exact price 2. Markup on Cost: = % markup on cost Amount added on Cost

Manufacturer Cost$ % markup$ 5.00 Selling price$25.00 Wholesaler Cost$ % markup$ 4.41 Selling price$29.41 Retailer Cost$ % markup$20.59 Selling price$50.00 Markup through a channel of distribution