1. 1 1 Marketing Management SECTION 1 7th Edition Pricing Strategy menu
Chapter Eleven
Demographic Considerations
Psychological Considerations
Price Elasticity
Pricing Objectives
EDLP Advantages
High/Low Advantages
Pricing Strategy
Key Product Considerations
Competitive Considerations
Governmental Considerations
General Pricing Model
Pricing Strategy Improvement
The Authors
C H A P T E R E L E V E N
Marketing
Management
7th Edition
J. Paul Peter
James H. Donnelly, Jr. 1 1
Pricing Strategy
McGraw-Hill/Irwin
© 2004 The McGraw-Hill Companies, Inc., All Rights Reserved.

2. 1 1 SECTION 1 Demographic Considerations
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SECTION 1
Chapter Eleven
Demographic Considerations
Psychological Considerations
Price Elasticity
Pricing Objectives
EDLP Advantages
High/Low Advantages
Pricing Strategy
Key Product Considerations
Competitive Considerations
Governmental Considerations
General Pricing Model
Pricing Strategy Improvement
The Authors
Demographic Considerations
Number of potential buyers; their age, gender and education
Location of potential buyers
Position of potential buyers
Expected consumption of potential buyers
Economic strength of potential buyers 1 1

3. 1 1 SECTION 1 Psychological Considerations
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SECTION 1
Chapter Eleven
Demographic Considerations
Psychological Considerations
Price Elasticity
Pricing Objectives
EDLP Advantages
High/Low Advantages
Pricing Strategy
Key Product Considerations
Competitive Considerations
Governmental Considerations
General Pricing Model
Pricing Strategy Improvement
The Authors
Psychological Considerations
Will potential buyers use price as an indicator of quality?
Will potential buyers be favorably attracted by odd pricing?
Woo potential buyers perceive price as too high relative to the service product gives?
Are potential buyers prestige oriented and willing to pay a premium to fill this need?
How much will potential buyers be willing to pay for the product? 1 1

4. 1 1 SECTION 1 e = Price Elasticity
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SECTION 1
Chapter Eleven
Demographic Considerations
Psychological Considerations
Price Elasticity
Pricing Objectives
EDLP Advantages
High/Low Advantages
Pricing Strategy
Key Product Considerations
Competitive Considerations
Governmental Considerations
General Pricing Model
Pricing Strategy Improvement
The Authors
Price Elasticity
Price elasticity is a measure of consumers’ price sensitivity
Even a crude estimate of price elasticity is useful input in pricing decisions
Percent change in quantity demanded 1 1
e =
Percent change in price

5. 1 1 SECTION 1 Pricing Objectives
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SECTION 1
Chapter Eleven
Demographic Considerations
Psychological Considerations
Price Elasticity
Pricing Objectives
EDLP Advantages
High/Low Advantages
Pricing Strategy
Key Product Considerations
Competitive Considerations
Governmental Considerations
General Pricing Model
Pricing Strategy Improvement
The Authors
Pricing Objectives
Pricing to achieve a target return on investment
Stabilization of price and margin
Pricing to achieve a target market share
Pricing to meet or prevent competition 1 1

6. 1 1 SECTION 1 Everyday Low Pricing Advantages Reduces price wars
menu
SECTION 1
Chapter Eleven
Demographic Considerations
Psychological Considerations
Price Elasticity
Pricing Objectives
EDLP Advantages
High/Low Advantages
Pricing Strategy
Key Product Considerations
Competitive Considerations
Governmental Considerations
General Pricing Model
Pricing Strategy Improvement
The Authors
Everyday Low Pricing
Advantages
Reduces price wars
Reduces advertising
Improves customer service
Reduces stock-outs and improves inventory management
Increases overall profit margins 1 1

7. 1 1 SECTION 1 High/Low Pricing Advantages Helps segment the market
menu
SECTION 1
Chapter Eleven
Demographic Considerations
Psychological Considerations
Price Elasticity
Pricing Objectives
EDLP Advantages
High/Low Advantages
Pricing Strategy
Key Product Considerations
Competitive Considerations
Governmental Considerations
General Pricing Model
Pricing Strategy Improvement
The Authors
High/Low Pricing
Advantages
Helps segment the market
Creates excitement
Moves merchandise
Emphasizes product quality and store service
Is easier to use 1 1

8. 1 1 SECTION 1 Pricing Strategy
menu
SECTION 1
Chapter Eleven
Demographic Considerations
Psychological Considerations
Price Elasticity
Pricing Objectives
EDLP Advantages
High/Low Advantages
Pricing Strategy
Key Product Considerations
Competitive Considerations
Governmental Considerations
General Pricing Model
Pricing Strategy Improvement
The Authors
Pricing Strategy
Markup pricing – percentage is added to the retailer’s invoice to determine final price
Cost-plus pricing – costs of producing a product plus desired profit are added to achieve price
Rate-of-return or target pricing – price is determined by adding desired rate of return on investment to total costs 1 1

9. 1 1 SECTION 1 Key Product Considerations
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SECTION 1
Chapter Eleven
Demographic Considerations
Psychological Considerations
Price Elasticity
Pricing Objectives
EDLP Advantages
High/Low Advantages
Pricing Strategy
Key Product Considerations
Competitive Considerations
Governmental Considerations
General Pricing Model
Pricing Strategy Improvement
The Authors
Key Product Considerations
Perishability – must be priced to sell without costly delays; includes fruit to high fashion
Distinctiveness – homogeneous goods have easy substitutes and make distinguishing between competitors difficult
Life Cycle –
Skimming policy is when seller charges a high price on a new product.
Penetration policy is when producer charges a low price for a new product. 1 1

10. 1 1 SECTION 1 Competitive Considerations Number of competitors
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SECTION 1
Chapter Eleven
Demographic Considerations
Psychological Considerations
Price Elasticity
Pricing Objectives
EDLP Advantages
High/Low Advantages
Pricing Strategy
Key Product Considerations
Competitive Considerations
Governmental Considerations
General Pricing Model
Pricing Strategy Improvement
The Authors
Competitive Considerations
Number of competitors
Size of competitors
Location of competitors
Conditions of entry into the industry
Degree of vertical integration of competitors
Number of products sold by competitors
Cost structure of competitors
Historical reaction of competitors to price changes 1 1

11. 1 1 SECTION 1 Governmental Considerations
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SECTION 1
Chapter Eleven
Demographic Considerations
Psychological Considerations
Price Elasticity
Pricing Objectives
EDLP Advantages
High/Low Advantages
Pricing Strategy
Key Product Considerations
Competitive Considerations
Governmental Considerations
General Pricing Model
Pricing Strategy Improvement
The Authors
Governmental Considerations
Price fixing ruled illegal – sellers cannot make any agreements with competitors regarding final price
Deceptive pricing tactics outlawed – claiming high price then selling at lower price
Price discrimination eliminated– can’t charge different customers different prices without justification 1 1

12. 1 1 SECTION 1 General Pricing Model SET PRICING OBJECTIVES
menu
SECTION 1
Chapter Eleven
Demographic Considerations
Psychological Considerations
Price Elasticity
Pricing Objectives
EDLP Advantages
High/Low Advantages
Pricing Strategy
Key Product Considerations
Competitive Considerations
Governmental Considerations
General Pricing Model
Pricing Strategy Improvement
The Authors
General Pricing Model
SET PRICING OBJECTIVES
EVALUATE PRODUCT-PRICE RELATIONSHIPS
ESTIMATE COST AND OTHER PRICE LIMIATIONS
ANALYZE PROFIT POTENTIAL 1 1
SET INITIAL PRICE STRUCTURE
CHANGE PRICE AS NEEDED
FIGURE 11-1

13. 1 1 SECTION 1 Pricing Strategy Improvement
menu
SECTION 1
Chapter Eleven
Demographic Considerations
Psychological Considerations
Price Elasticity
Pricing Objectives
EDLP Advantages
High/Low Advantages
Pricing Strategy
Key Product Considerations
Competitive Considerations
Governmental Considerations
General Pricing Model
Pricing Strategy Improvement
The Authors
Pricing Strategy Improvement
Base pricing strategies on sound research in order to understand relevant price factors.
Continuously monitor pricing decisions because they often help define company image.
Remember that consumers have trouble recognizing subtle price differences.
Remember that consumers evaluate prices comparatively. They often use a sense of what they think the item should cost as a benchmark. 1 1

14. 1 1 SECTION 1 Pricing Strategy Improvement
menu
SECTION 1
Chapter Eleven
Demographic Considerations
Psychological Considerations
Price Elasticity
Pricing Objectives
EDLP Advantages
High/Low Advantages
Pricing Strategy
Key Product Considerations
Competitive Considerations
Governmental Considerations
General Pricing Model
Pricing Strategy Improvement
The Authors
Pricing Strategy Improvement
5. Recognize that buyers typically have a range of acceptable prices defined by upper and lower limits.
6. Understand the importance of relative price to buyers – the relationship between a price and your competitors’ price.
7. Understand the importance of price information and it effects on differentiating products within a product line.
8. Recognize that price elasticity vary – it is easier to lose customers to price increases then gain them from price decreases. 1 1

15. 1 1 SECTION 1 The Authors menu J. Paul Peter, Ph.D.
Chapter Eleven
Demographic Considerations
Psychological Considerations
Price Elasticity
Pricing Objectives
EDLP Advantages
High/Low Advantages
Pricing Strategy
Key Product Considerations
Competitive Considerations
Governmental Considerations
General Pricing Model
Pricing Strategy Improvement
The Authors
The Authors
J. Paul Peter, Ph.D.
University of Wisconsin – Madison
3Click image to go to author’s web site
James H. Donnelly, Jr., Ph.D.
University of Kentucky – Lexington
3Click image to go to author’s web site 1 1
Marketing Management
7th Edition – McGraw-Hill
3Click on the book to go to the book site
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