1. Developing Pricing Strategies and Programs14
Developing Pricing Strategies and Programs
Marketing Management, 13th ed

2. 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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3. Gillette Commands a Price Premium
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4. 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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5. 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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6. Consumer Psychology and Pricing
Reference Prices
Price-quality inferences
Price endings
Price cues
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7. 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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8. 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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9. Tiffany’s Price-Quality Relationship
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10. Price Cues “Left to right” pricing ($299 vs. $300)
Odd number discount perceptions
Even number value perceptions
Ending prices with 0 or 5
“Sale” written next to price
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11. 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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12. 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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13. Step 1: Selecting the Pricing Objective
Survival
Maximum current profit
Maximum market share
Maximum market skimming
Product-quality leadership
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14. Step 2: Determining Demand
Price Sensitivity
Estimating
Demand Curves
Price Elasticity
of Demand
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15. Figure 14.2 Inelastic and Elastic Demand
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16. Table 14.3 Factors Leading to Less Price Sensitivity
The product is more distinctive
Buyers are less aware of substitutes
Buyers cannot easily compare the quality of substitutes
The expenditure is a smaller part of buyer’s total income
The expenditure is small compared to the total cost of the end product
Part of the cost is paid by another party
The product is used with previously purchased assets
The product is assumed to have high quality and prestige
Buyers cannot store the product
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17. Step 3: Estimating Costs
Types of Costs
Accumulated
Production
Activity-Based
Cost Accounting
Target Costing
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18. Cost Terms and Production
Fixed costs
Variable costs
Total costs
Average cost
Cost at different levels of production
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19. Figure 14.4 Cost per Unit as a Function of Accumulated Production
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20. 9 Lives Uses Target Costing
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21. 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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22. Figure 14.6 Break-Even Chart
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23. Auction-Type Pricing English auctions Dutch auctions
Sealed-bid auctions
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24. 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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25. Price-Adaptation Strategies
Geographical Pricing
Discounts/Allowances
Promotional Pricing
Differentiated Pricing
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26. 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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27. 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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28. Differentiated Pricing
Customer-segment pricing
Product-form pricing
Image pricing
Channel pricing
Location pricing
Time pricing
Yield pricing
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29. Table 14.6 Profits Before and After a Price Increase
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30. Increasing Prices Delayed quotation pricing Escalator clauses
Unbundling
Reduction of discounts
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31. 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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32. Marketing Debate Is the right price a fair price? Take a position:
Prices should reflect the value that
consumers are willing to pay. or
2. Prices should primarily just reflect the cost
involved in making a product.
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33. Marketing Discussion Think of all the pricing methods
described in the chapter.
As a consumer, which pricing method
do you personally prefer to deal with?
Why?
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