1. Chapter 10 Pricing Strategies
Copyright  2007 McGraw-Hill Australia Pty Ltd PPTs t/a Marketing: A Practical Approach 6/e by Peter Rix
Slides prepared by Angela Tasevski

2. Slides prepared by Angela Tasevski
Price
Price is ‘what we pay for is what we get!’ It is the amount of money needed to acquire a product.
Value is the quantitative measure of the worth of a product in an exchange for something else. So, price is value expressed in money terms.
Copyright  2007 McGraw-Hill Australia Pty Ltd PPTs t/a Marketing: A Practical Approach 6/e by Peter Rix
Slides prepared by Angela Tasevski

3. Slides prepared by Angela Tasevski
Price setting process
Copyright  2007 McGraw-Hill Australia Pty Ltd PPTs t/a Marketing: A Practical Approach 6/e by Peter Rix
Slides prepared by Angela Tasevski

4. Slides prepared by Angela Tasevski
Pricing objectives
Profit-oriented:
To achieve a target return, or to maximise profits.
Sales-oriented:
To increase sales volume, or to maintain or increase market share.
Status-quo oriented:
To stabilise prices, or to meet competition (e.g. petrol).
Copyright  2007 McGraw-Hill Australia Pty Ltd PPTs t/a Marketing: A Practical Approach 6/e by Peter Rix
Slides prepared by Angela Tasevski

5. Factors influencing price setting
the extent of demand
determining the expected price from the:
Expected price—the price at which customers consciously or unconsciously value a product.
Inverse demand—the higher the price the greater the unit sales (demand).
Estimated sales at various prices
Conduct survey of buyer intentions.
Conduct test-market experiments.
Use computerised models.
Get sales estimates from seller.
Sales team to estimate sales for their areas/customers.
Copyright  2007 McGraw-Hill Australia Pty Ltd PPTs t/a Marketing: A Practical Approach 6/e by Peter Rix
Slides prepared by Angela Tasevski

6. The inverse demand curve
Copyright  2007 McGraw-Hill Australia Pty Ltd PPTs t/a Marketing: A Practical Approach 6/e by Peter Rix
Slides prepared by Angela Tasevski

7. Price elasticity of demand
The effect that price change has on the number of units sold and the total revenue.
Demand is elastic when:
A reduction in price causes an increase in total revenue.
An increase in price causes a decrease in total revenue.
Demand is inelastic when:
A price cut causes total revenue to decline.
A prise rise causes an increase in total revenue.
Refer to Figure 10.3, page 343.
Copyright  2007 McGraw-Hill Australia Pty Ltd PPTs t/a Marketing: A Practical Approach 6/e by Peter Rix
Slides prepared by Angela Tasevski

8. Other parts of the marketing mix
Product
Stage of life cycle.
Terms of sale.
The product’s end use.
Copyright  2007 McGraw-Hill Australia Pty Ltd PPTs t/a Marketing: A Practical Approach 6/e by Peter Rix
Slides prepared by Angela Tasevski

9. Other parts of the marketing mix
Distribution channels
Factory pricing for various customer types through intermediaries, e.g. direct to wholesale or direct to customer.
Direct to customer without intermediaries.
Copyright  2007 McGraw-Hill Australia Pty Ltd PPTs t/a Marketing: A Practical Approach 6/e by Peter Rix
Slides prepared by Angela Tasevski

10. Other parts of the marketing mix
Promotion
Type of channel used.
Promotional responsibilities determine price for product from supplier.
Local to tie in with national advertising.
Copyright  2007 McGraw-Hill Australia Pty Ltd PPTs t/a Marketing: A Practical Approach 6/e by Peter Rix
Slides prepared by Angela Tasevski

11. Slides prepared by Angela Tasevski
Product cost
These are various:
producer’s cost
fixed cost
variable cost
total cost
marginal cost
Refer to Figure 10.4, page 346.
Copyright  2007 McGraw-Hill Australia Pty Ltd PPTs t/a Marketing: A Practical Approach 6/e by Peter Rix
Slides prepared by Angela Tasevski

12. Price-setting methods
Cost-plus—setting price of unit based on total cost plus desired profit (Table 10.2, p.349) or
Marginal cost plus desired profit.
Demand-based pricing (goods or services).
Value-based pricing
Includes tangible and intangible attributes.
Objective is to determine the level of satisfaction a customer wants and what price they are prepared to pay for it.
Also the price the firm believes a customer will pay.
Copyright  2007 McGraw-Hill Australia Pty Ltd PPTs t/a Marketing: A Practical Approach 6/e by Peter Rix
Slides prepared by Angela Tasevski

13. Slides prepared by Angela Tasevski
Break-even point
The break-even point (zero profit):
BEP (Units) = Total Fixed Costs ($)
Selling price per unit – average variable cost per unit
BEP (Dollars) = Fixed costs
Contribution margin ratio = Fixed Costs
(Price–variable costs)/ V. costs
Copyright  2007 McGraw-Hill Australia Pty Ltd PPTs t/a Marketing: A Practical Approach 6/e by Peter Rix
Slides prepared by Angela Tasevski

14. Break-even point (chart)
Copyright  2007 McGraw-Hill Australia Pty Ltd PPTs t/a Marketing: A Practical Approach 6/e by Peter Rix
Slides prepared by Angela Tasevski

15. Competition-based pricing
Firm’s price is influenced by what the competition is charging.
Pricing to meet competition
Firm finds out what the market price is, and after allowing for mark-ups and intermediaries, it arrives at its own selling price.
Pricing below the competition level
Pricing below competition, commonly used by discount retailers.
Copyright  2007 McGraw-Hill Australia Pty Ltd PPTs t/a Marketing: A Practical Approach 6/e by Peter Rix
Slides prepared by Angela Tasevski

16. Competition-based pricing (continued)
Pricing above competition
Pricing above competition, usually only when the product is distinctive or the seller has acquired prestige.
Copyright  2007 McGraw-Hill Australia Pty Ltd PPTs t/a Marketing: A Practical Approach 6/e by Peter Rix
Slides prepared by Angela Tasevski

17. Slides prepared by Angela Tasevski
Market entry strategies
Market skimming pricing—involves setting a relatively high initial price.
The price is set at the highest possible level that interested consumers will pay for the new product.
It can help to establish a high-quality image for the new product.
Copyright  2007 McGraw-Hill Australia Pty Ltd PPTs t/a Marketing: A Practical Approach 6/e by Peter Rix
Slides prepared by Angela Tasevski

18. Market entry strategies
Market-penetration pricing—a relatively low initial price is set for a new product.
Usually in order to reach mass markets.
Also to discourage competition.
Copyright  2007 McGraw-Hill Australia Pty Ltd PPTs t/a Marketing: A Practical Approach 6/e by Peter Rix
Slides prepared by Angela Tasevski

19. Slides prepared by Angela Tasevski
Discounts and allowances
Quantity discounts
– Discounts based on the size of the purchase.
Trade discounts
– Reductions from list price offered to buyers as payment for the marketing functions that they will perform.
Copyright  2007 McGraw-Hill Australia Pty Ltd PPTs t/a Marketing: A Practical Approach 6/e by Peter Rix
Slides prepared by Angela Tasevski

20. Slides prepared by Angela Tasevski
Discounts and allowances
Cash discounts
– Deductions given to buyers for paying their bills within a specified time.
Promotional discounts
– Reductions granted by a seller in payment for promotional services performed by buyers.
Copyright  2007 McGraw-Hill Australia Pty Ltd PPTs t/a Marketing: A Practical Approach 6/e by Peter Rix
Slides prepared by Angela Tasevski

21. Legal and ethical pricing
Trade Practices Act 1974 (Cwlth)
Price discrimination
Section 49 of the Act prohibits discrimination in either price or non-price terms of trade (including advertising and marketing assistance, allowances, rebates and so on), if this discrimination could substantially injure competition.
Price fixing
Collusion between competitors to fix or control prices is illegal under the Act.
Copyright  2007 McGraw-Hill Australia Pty Ltd PPTs t/a Marketing: A Practical Approach 6/e by Peter Rix
Slides prepared by Angela Tasevski

22. Legal and ethical pricing
Re-sale price maintenance
This occurs where the supplier stipulates or controls the resale price charged by the purchaser.
Misleading or deceptive pricing
Misleading or deceptive advertising of the price of a product is illegal under the general prohibition in section 52 of the Trade Practices Act.
Copyright  2007 McGraw-Hill Australia Pty Ltd PPTs t/a Marketing: A Practical Approach 6/e by Peter Rix
Slides prepared by Angela Tasevski

23. Legal and ethical pricing
Freight costs and geographic pricing
Marketers need to take into account costs involved in shipping goods to buyers.
Alternative strategies:
Buyer pays freight costs.
Seller bears cost of freight.
Both parties share freight cost.
Copyright  2007 McGraw-Hill Australia Pty Ltd PPTs t/a Marketing: A Practical Approach 6/e by Peter Rix
Slides prepared by Angela Tasevski

24. Legal and ethical pricing
Point-of-production pricing
Commonly known as FOB (free on board) and referring to export sales where the seller has paid to have goods loaded on board the ship and the buyer has paid for the cost of freight, ex-factory or factory gate pricing.
Copyright  2007 McGraw-Hill Australia Pty Ltd PPTs t/a Marketing: A Practical Approach 6/e by Peter Rix
Slides prepared by Angela Tasevski

25. Legal and ethical pricing
Uniform-delivered pricing
The same delivered price is quoted to all buyers regardless of their locations.
Usually where transport cost is minimal.
Copyright  2007 McGraw-Hill Australia Pty Ltd PPTs t/a Marketing: A Practical Approach 6/e by Peter Rix
Slides prepared by Angela Tasevski

26. Legal and ethical pricing
Zone-delivered pricing
Divides a seller’s market into a limited number of broad geographic zones, and then a uniform delivered price is set within each zone.
Freight-absorption pricing
Seller might absorb part of the freight cost to offset competition.
Copyright  2007 McGraw-Hill Australia Pty Ltd PPTs t/a Marketing: A Practical Approach 6/e by Peter Rix
Slides prepared by Angela Tasevski

27. Other pricing strategies
Flexible price strategy
Similar customers might pay a different price when buying similar quantities.
Price lining
Involves selecting a limited number of prices at which a business will set related products.
Odd-pricing (psychological pricing)
A strategy used by retailers for setting prices at uneven (or odd) amounts, e.g. $2.99 instead of $3.00.
Copyright  2007 McGraw-Hill Australia Pty Ltd PPTs t/a Marketing: A Practical Approach 6/e by Peter Rix
Slides prepared by Angela Tasevski

28. Other pricing strategies
Loss-leader pricing
A promotional pricing strategy where the seller sets a very low price, at cost or below cost, to attract customers.
RRP (recommended retail price)
Manufacturer recommends a price to seller to assist in maintaining brand equity/image.
Changing price
Firm may choose to change price depending on varying circumstances.
Copyright  2007 McGraw-Hill Australia Pty Ltd PPTs t/a Marketing: A Practical Approach 6/e by Peter Rix
Slides prepared by Angela Tasevski