1. Chapter 10 Developing Price Strategies and Programs
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2. Price is the amount of money and /or other items with utility needed to acquire a product
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3. Figure 16.1: Nine Price-Quality Strategies
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4. ktþaxagkñúgEdlman\T§iBlelIkarsMerccitþGMBIéfø (Internal Factors Affecting Pricing Decisions)
rs;ran (Survival)
éføTabedIm,IsþarcMNayGefr nigcMNayefrxøHedIm,IsßitkñúgGaCIvkmµ
(Low Prices to Cover Variable Costs and Some Fixed Costs to Stay in Business.)
R)ak;cMenjGtibrmaPøam²(Current Profit Maximization) eRCIserIséføEdlbegáItnUvR)ak;cMenjGtibrimaPøam² (Choose the Price that Produces the Maximum Current Profit, Etc.)
eKalbMNgMarketing
(Marketing Objectives)
naMmuxGMBIGRtaTIpSar (Market Share Leadership)
éføTabtamGaceTArYcedIm,IkøayCaGñknaMmuxGRtaTIpSar (Low as Possible Prices to Become the Market Share Leader.)
PaBnaMmuxxagKuñNPaB (Product Quality Leadership)
éføx<s;edIm,IsþarcMNayelIKuNPaBx<s;nig RsavRCavnigGPIvDÆn¾ (High Prices to Cover Higher Performance Quality and R & D.)
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5. Karpþl; cMNaynigéførbs;KURbECg
TIpSar nigtMrUvkar
(Market and Demand )
ktþaxageRkAEdlman\T§iBlenAelIkarsMerccitþGMBIéfø (External Factors Affecting Pricing Decisions)
Karpþl; cMNaynigéførbs;KURbECg
(Competitors’ Costs, Prices, and Offers)
KtþaxageRkAdéTeTot (Other External Factors)
lkçx½Nðesdækic©/ tMrUvkarGñkTijeTAlk;vij
skmµPaBrdæaPi)al
(Economic Conditions Reseller Needs Government Actions)
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6. éføx<s;(High Price)
karKitBicarNasMxan;²kñúgkarkMnt;éfø (Major Considerations in Setting Price)
TMrg; C TaMg 3 sMrab;karkMnt;éfø (The Three C’s Model for Price Setting)
éføx<s;(High Price)
enAkMritéføenHKµan
lT§PaBtMrUvkareT
(No possible
demand at
this price)
éføTab(Low Price)
enAkMritéføenHKµan
lT§PaBcMenjeT
(No possible
profit at this price)
éførbs;KURbECg
nigéføplitplCMnYs
(Competitors’
prices and prices of
Substitutes)
RbemIlemIlGtifiCnelI
lkçN³edayELkrbs;
Plitpl (Customers’
Assessment of unique
Product Features)
cMNay
(Costs)
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7. Figure 10.1: Setting Pricing Policy
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8. Setting the Price Step 1: Selecting the pricing objective
Survival
Maximize current profits
Maximize their market share
Market-penetration pricing a relatively low initial price is established for a new product.
Market is highly price-sensitive, and a low price stimulates market growth,
Production and distribution costs fall within accumulated production experience
Low price discourages actual and potential competition
Demand is highly elastic
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9. Setting the Price
Market- Skimming pricing: setting a relatively high initial price for new product. The market-skimming pricing is suitable under the following conditions:
The new product has distinctive features.
Demand is fairly inelastic
The new product is protected from competition
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10. Figure 16.4: Inelastic and Elastic Demand
Setting the Price
Step 2: Determining Demand
Price sensitivity
Price elasticity of demand
Figure 16.4: Inelastic and Elastic Demand
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11. Setting the Price Step 3: Estimating Cost
Types of Cost and Levels of Production
Fixed costs (overhead)
Variable cost
Total cost
Average cost
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12. Setting the Price
Step 4: Analyzing Competitors’ Cost, Prices, and Offers
Firms should first consider the nearest competitor’s price.
The firm must take the competitors’ cost
The firm must offer contains positive differentiation feature.
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13. Setting the Price Step 5: Selecting a Pricing Method Markup Pricing
Unit Cost = variable cost + (fixed cost/unit sales)
Suppose a toaster manufacturer has the following
VC per unit $10
FC ,000
Expected unit cost ,000
Unit cost=$10+($ 300,000/50,000)=$16
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14. Markup price= unit cost/ (1 – desired return on sales)
Setting the Price
Markup price
Markup price= unit cost/ (1 – desired return on sales)
Assume the manufacturer want to earn a 20% markup on sale
So markup price is given by
Markup price=$16/(1-0.2)=$20
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15. Everyday low pricing (EDLP) High-low pricing Going-Rate Pricing
Setting the Price
Value Pricing
Everyday low pricing (EDLP)
High-low pricing
Going-Rate Pricing
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16. Setting the Price Step 6: Selecting the Final Price
Psychological Pricing
Odd pricing
Influence of the Other Marketing Elements
Brands with average relative quality but high relative advertising budgets charged premium prices
Brands with high relative quality and high relative advertising budgets obtained the highest prices
The positive relationship between high advertising budgets and high prices held most strongly in the later stages of the product life cycle for market leaders
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17. Adapting the Price Price Discounts and Allowances Cash discount
Quantity discount
Functional discount
Seasonal discount
Allowance
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18. Adapting the Price Promotional Pricing Loss-leader pricing
Special-event pricing
Cash rebates
Low-interest financing
Longer payment terms
Warranties and service contracts
Psychological discounting
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19. Adapting the Price Discriminatory Pricing Customer segment pricing
Product-form pricing
Image pricing
Channel pricing
Location pricing
Time pricing
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20. Initiating and Responding to Price Changes
Initiating Price Cuts
Drive to dominate the market through lower costs
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21. Initiating and Responding to Price Changes
Initiating Price Increases
Cost inflation
Anticipatory pricing
Overdemand
Delayed quotation pricing
Escalator clauses
Unbundling
Reduction of discounts
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22. Initiating and Responding to Price Changes
Reactions to Price Changes
Customer Reactions
Competitor Reactions
Responding to Competitors’ Price Changes
Maintain price
Maintain price and add value
Reduce price
Increase price and improve quality
Launch a low-price fighter line
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