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MARKETING MANAGEMENT 12th edition
14 Developing Pricing Strategies and Programs Kotler Keller
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Chapter Questions How do consumers process and evaluate prices?
How should a company set prices initially for products or services? How should a company adapt prices to meet varying circumstances and opportunities? When should a company initiate a price change? How should a company respond to a competitor’s price challenge?
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Whirlpool’s Duet combo is nearly four times the price of comparable models
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Synonyms for Price Special assessment Rent Bribe Tuition Dues Fee
Salary Commission Wage Tax Rent Tuition Fee Fare Rate Toll Premium Honorarium
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Common Pricing Mistakes
Determine costs and take traditional industry margins Failure to revise price to capitalize on market changes Setting price independently of the rest of the marketing mix Failure to vary price by product item, market segment, distribution channels, and purchase occasion
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Consumer Psychology and Pricing
Reference Prices Price-quality inferences Price endings Price cues
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Table 14.1 Possible Consumer Reference Prices
“Fair price” Typical price Last price paid Upper-bound price Lower-bound price Competitor prices Expected future price Usual discounted price
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Table 14.2 Consumer Perceptions vs. Reality for Cars
Overvalued Brands Land Rover Kia Volkswagen Volvo Mercedes Undervalued Brands Mercury Infiniti Buick Lincoln Chrysler
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Price Cues “Left to right” pricing ($299 versus $300)
Odd number discount perceptions Even number value perceptions Ending prices with 0 or 5 “Sale” written next to price
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When to Use Price Cues Customers purchase item infrequently
Customers are new Product designs vary over time Prices vary seasonally Quality or sizes vary across stores
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Steps in Setting Price Select the price objective Determine demand
Estimate costs Analyze competitor price mix Select pricing method Select final price
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Step 1: Selecting the Pricing Objective
Survival Maximum current profit Maximum market share Maximum market skimming Product-quality leadership
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Figure 14.1 Price Tiers in the Ice Cream Market
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Step 2: Determining Demand
Price Sensitivity Estimating Demand Curves Price Elasticity of Demand
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Figure 14.2 Inelastic and Elastic Demand
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Step 3: Estimating Costs
Types of Costs Accumulated Production Activity-Based Cost Accounting Target Costing
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Cost Terms and Production
Fixed costs Variable costs Total costs Average cost Cost at different levels of production
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Figure 14.4 Cost per Unit as a Function of Accumulated Production
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9 Lives Uses Target Costing
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Step 5: Selecting a Pricing Method
Markup pricing Target-return pricing Perceived-value pricing Value pricing Going-rate pricing Auction-type pricing
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Figure 14.6 Break-Even Chart
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Auction-Type Pricing English auctions Dutch auctions
Sealed-bid auctions
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Step 6: Selecting the Final Price
Impact of other marketing activities Company pricing policies Gain-and-risk sharing pricing Impact of price on other parties
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Price-Adaptation Strategies
Geographical Pricing Discounts/Allowances Promotional Pricing Differentiated Pricing
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Price-Adaptation Strategies
Countertrade Barter Compensation deal Buyback arrangement Offset Discounts/ Allowances Cash discount Quantity discount Functional discount Seasonal discount Allowance
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Promotional Pricing Tactics
Loss-leader pricing Special-event pricing Cash rebates Low-interest financing Longer payment terms Warranties and service contracts Psychological discounting
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Differentiated Pricing and Price Discrimination
Customer-segment pricing Product-form pricing Image pricing Channel pricing Location pricing Time pricing Yield pricing
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Table 14.5 Profits Before and After a Price Increase
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Increasing Prices Delayed quotation pricing Escalator clauses
Unbundling Reduction of discounts
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Figure 14.7 Price-Reaction Program for Meeting Competitor’s Price Cut
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Brand Leader Responses to Competitive Price Cuts
Maintain price Maintain price and add value Reduce price Increase price and improve quality Launch a low-price fighter line
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Marketing Debate Is the right price a fair price? Take a position:
Prices should reflect the value that consumers are willing to pay. 2. Prices should primarily just reflect the cost involved in making a product.
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Marketing Discussion As a consumer, which pricing
method do you personally prefer to deal with? Why?
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