1. Kelley Fall 2001 Marketing Management
Determining Price
Know your costs
Know your demand
Know your competition
Kelley Fall 2001 Marketing Management

2. Kelley Fall 2001 Marketing Management
Pricing Objectives
Primary demand strategies
Reduce economic risk of trial
Offer better value
Enable use in wider range of situations
Selective demand strategies
Undercut competition
Use price to signal premium quality
Kelley Fall 2001 Marketing Management

3. Kelley Fall 2001 Marketing Management
Pricing Objectives
Product line strategies
Get buyers to trade-up
Distinguish product line alternatives on value/features
Expand range of products bought by existing customers
Attract new customers on superior value of a system or package of products
Kelley Fall 2001 Marketing Management

4. Kelley Fall 2001 Marketing Management
Penetration Pricing
Low price to stimulate demand
Best if:
Market demand is elastic, company demand is elastic
Large number of strong competitors exist
Economies of scale exist
Pricing objectives to be accomplished
Build primary demand
Acquire new customers by undercutting competition
Kelley Fall 2001 Marketing Management

5. Kelley Fall 2001 Marketing Management
Parity Pricing
Set price near competitive levels
Best if:
Market demand is inelastic, company demand is elastic
No cost advantages exist over competitors
Pricing objective is to meet the competition
There are no expected gains from economies of scale
Kelley Fall 2001 Marketing Management

6. Kelley Fall 2001 Marketing Management
Premium Pricing
Set price above competitive levels
Best if:
Company demand is inelastic
Firm has no excess capacity
Strong barriers to entry exist
Only minor gain from economies of scale are possible
Pricing objective is to attract new customers on quality
Kelley Fall 2001 Marketing Management

7. Characteristics of A Good Price Leader
Product is widely used
Product’s prevailing market price is well known
Product has many complements
Product has few or no substitutes
Product is not bought in large quantities and stored
Kelley Fall 2001 Marketing Management