MARKETING STRATEGY O.C. FERRELL MICHAEL D. HARTLINE 8 Pricing Strategy

8-2 The Role of Pricing in Marketing Strategy (1 of 2) The Seller’s Perspective on Pricing Four key issues: –(1) Costs –(2) Demand –(3) Customer value –(4) Competitors’ prices The Buyer’s Perspective on Pricing –Two key issues: (1) Perceived value (2) Price sensitivity

8-3 The Role of Pricing in Marketing Strategy (2 of 2) A Shift in the Balance of Power –Buyer’s market Large number of sellers in the market Many substitutes for the product Economy is weak –Seller’s market Products are in short supply High demand Economy is strong The Relationship Between Price and Revenue –Myth #1: When business is good, a price cut will increase market share. –Myth #2: When business is bad, a price cut will stimulate sales.

8-4 Major Determinants of Pricing Strategy Pricing Objectives Supply and Demand The Firm’s Cost Structure Competition and Industry Structure –Four basic competitive market structures: Pure Competition Monopolistic Competition Oligopoly Monopoly Stage of the Product Life Cycle Other Elements of the Marketing Mix

8-5 Price Elasticity of Demand (1 of 2) Formula for calculating price elasticity: Situations That Increase Price Sensitivity –Availability of product substitutes –Higher total expenditure –Noticeable differences –Easy price comparison

8-6 Price Elasticity of Demand (2 of 2) Situations That Decrease Price Sensitivity –Real or perceived necessities –Lack of product substitutes –Complementary products –Product differentiation –Perceived product benefits –Situational influences Price Elasticity and Yield Management –Allows simultaneous control of capacity and demand Control capacity by limiting available capacity at certain price points Control demand through price changes and overbooking capacity

8-7 Yield Management for a Hypothetical Model Exhibit 8.4

8-8 Pricing Strategies (1 of 2) Base Pricing Strategies –Price Skimming –Penetration Pricing –Prestige Pricing –Value-Based Pricing (EDLP) –Competitive Matching –Non-Price Strategies Adjusting Prices in Consumer Markets –Promotional Discounting –Reference Pricing –Odd-Even Pricing –Price Bundling

8-9 Pricing Strategies (2 of 2) Adjusting Prices in Business Markets –Pricing techniques unique to business markets: Trade discounts Discounts and allowances Geographic pricing Transfer pricing Barter and countertrade –Price discrimination

8-10 Fixed vs. Negotiated Pricing Three pricing levels in a negotiated price situation: –(1) Opening position –(2) Aspiration price –(3) Limit Guidelines for making concessions: –Avoid being the first side to make a concession –Start with modest concessions and make them smaller as you proceed –Avoid making concessions early in the negotiation –Do not give up anything without something in return

8-11 Major Online Auction Strategies Exhibit 8.5

8-12 Legal and Ethical Issues in Pricing Price Discrimination Price Fixing Predatory Pricing Deceptive Pricing