13 Copyright © 2012 Pearson Education, Inc. Publishing as Prentice Hall13-1 Pricing Strategies

Copyright © 2012 Pearson Education, Inc. Publishing as Prentice Hall13-2 C HAPTER O BJECTIVES 1. What are the roles of price and value in the marketing mix? How do market structures, costs, and demand affect prices? 2. What are the most important market factors influencing pricing decisions? 3. How do marketers use pricing strategy and pricing objectives to achieve their goals? 4. What procedures and strategies do marketers use when making pricing decisions?

Copyright © 2012 Pearson Education, Inc. Publishing as Prentice Hall13-3 O BJECTIVE 1 What are the roles of price and value in the marketing mix? How do market structures, costs, and demand affect prices?

DEFINEDDEFINED Copyright © 2012 Pearson Education, Inc. Publishing as Prentice Hall13-4 A Price is the exchange value of a product or service in the marketplace.

EXPLAINEDEXPLAINED Copyright © 2012 Pearson Education, Inc. Publishing as Prentice Hall13-5 V ALUE Value = Benefits – Costs Service Benefits Brand Benefits Product Benefits Price & Other Costs Value

EXPLAINEDEXPLAINED Copyright © 2012 Pearson Education, Inc. Publishing as Prentice Hall13-6 Performance

APPLIEDAPPLIED Copyright © 2012 Pearson Education, Inc. Publishing as Prentice Hall13-7 E STABLISHING P RICES Price ProductPlace Promotion

APPLIEDAPPLIED Copyright © 2012 Pearson Education, Inc. Publishing as Prentice Hall13-8 M ARKET S TRUCTURE Pure Competition Oligopoly Monopolistic Competition Monopoly

APPLIEDAPPLIED Copyright © 2012 Pearson Education, Inc. Publishing as Prentice Hall13-9 C OST -B ASED P RICING ProfitRevenueCosts Price x Units Sold Fixed Costs + Variable Costs

APPLIEDAPPLIED Copyright © 2012 Pearson Education, Inc. Publishing as Prentice Hall13-10 C OST -B ASED P RICING

APPLIEDAPPLIED Copyright © 2012 Pearson Education, Inc. Publishing as Prentice Hall13-11 C OST -P LUS P RICING Markup %MarginSelling Price 10%11.0%$ %17.6%$ %25.0%$ %33%$ %42.8%$17.14 For a product costing $12.00…

APPLIEDAPPLIED Copyright © 2012 Pearson Education, Inc. Publishing as Prentice Hall13-12 B REAK - EVEN P OINT Fixed Cost = $40k; Variable Cost = $5; Selling Price = $10

APPLIEDAPPLIED Copyright © 2012 Pearson Education, Inc. Publishing as Prentice Hall13-13 D ETERMINATION OF D EMAND 100K 200K 300K Quantity $0.50 Price $0.25 $0.10

Copyright © 2012 Pearson Education, Inc. Publishing as Prentice Hall13-14 O BJECTIVE 2 What are the most important market factors influencing pricing decisions?

DEFINEDDEFINED Copyright © 2012 Pearson Education, Inc. Publishing as Prentice Hall13-15 Pricing Practices are considerations (such as legal requirements or bidding practices) that must be taken into account when establishing a price for a product or service.

EXPLAINEDEXPLAINED Copyright © 2012 Pearson Education, Inc. Publishing as Prentice Hall13-16 P RICING P RACTICES Legal Requirements Competitive Bidding Global Market Environment

APPLIEDAPPLIED Copyright © 2012 Pearson Education, Inc. Publishing as Prentice Hall13-17 P RICING P RACTICES

APPLIEDAPPLIED Copyright © 2012 Pearson Education, Inc. Publishing as Prentice Hall13-18 P RICE R EDUCTION E FFECT Kenneth Wisniewski and Robert Blattberg at the University of Chicago's Center for Research in Marketing.89¢.71¢ 66% Increase.69¢ 222% Increase

Copyright © 2012 Pearson Education, Inc. Publishing as Prentice Hall13-19 O BJECTIVES 3 & 4 How do marketers use pricing strategy and pricing objectives to achieve their goals? What procedures and strategies do marketers use when making pricing decisions?

DEFINEDDEFINED Copyright © 2012 Pearson Education, Inc. Publishing as Prentice Hall13-20 A Pricing Strategy identifies what a business will charge for its products or services.

EXPLAINEDEXPLAINED Copyright © 2012 Pearson Education, Inc. Publishing as Prentice Hall13-21 P RICING O BJECTIVES Profitability $ Volume $ Meeting Competition $ Prestige $

APPLIEDAPPLIED Copyright © 2012 Pearson Education, Inc. Publishing as Prentice Hall13-22 P RICING S TRATEGY 1 Develop Price Objectives 2 Estimate Demand 3 Determine Costs 4 Evaluate the Pricing Environment 5 Choose Pricing Strategy 6 Develop Pricing Tactics

APPLIEDAPPLIED Copyright © 2012 Pearson Education, Inc. Publishing as Prentice Hall13-23 N EW P RODUCT P RICING Skimming Product outperforms others Early adopters value product Demand is inelastic Expected demand can’t be met High quality is desired position

APPLIEDAPPLIED Copyright © 2012 Pearson Education, Inc. Publishing as Prentice Hall13-24 N EW P RODUCT P RICING Penetration Higher volume reduces costs Low price deters competitors Demand is elastic Buyer’s price is sensitive Competitor imitation possible

APPLIEDAPPLIED Copyright © 2012 Pearson Education, Inc. Publishing as Prentice Hall13-25 P RICING S TRATEGIES Storefront Pricing Online Pricing Tiered Pricing Auction Pricing Forward Auction Reverse Auction Dynamic Pricing

APPLIEDAPPLIED Copyright © 2012 Pearson Education, Inc. Publishing as Prentice Hall13-26 P ORTFOLIO P RICING Customer’s willingness to pay Price ceiling $$$ Price floor $ Product 1 Product 2 Product 3 Price range for brand/product line

APPLIEDAPPLIED Copyright © 2012 Pearson Education, Inc. Publishing as Prentice Hall13-27 P RICE A DJUSTMENT S TRATEGIES Cash DiscountQuantity DiscountTrade-inRebate

Copyright © 2012 Pearson Education, Inc. Publishing as Prentice Hall13-28 V ISUAL S UMMARY

Copyright © 2012 Pearson Education, Inc. Publishing as Prentice Hall13-29 All rights reserved. No part of this publication may be reproduced, stored in a retrieval system, or transmitted, in any form or by any means, electronic, mechanical, photocopying, recording, or otherwise, without the prior written permission of the publisher. Printed in the United States of America.