1. Chapter 10 Pricing Strategies
Copyright  2004 McGraw-Hill Australia Pty Ltd PPTs t/a Marketing: A Practical Approach 5/e by Peter Rix
Slides prepared by: Joe Rosagrata

2. Slides prepared by: Joe Rosagrata
Price
Price is what we pay for 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  2004 McGraw-Hill Australia Pty Ltd PPTs t/a Marketing: A Practical Approach 5/e by Peter Rix
Slides prepared by: Joe Rosagrata

3. Slides prepared by: Joe Rosagrata
Price setting process
Insert Fig 10.1 page 293
Copyright  2004 McGraw-Hill Australia Pty Ltd PPTs t/a Marketing: A Practical Approach 5/e by Peter Rix
Slides prepared by: Joe Rosagrata

4. Slides prepared by: Joe Rosagrata
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.
Copyright  2004 McGraw-Hill Australia Pty Ltd PPTs t/a Marketing: A Practical Approach 5/e by Peter Rix
Slides prepared by: Joe Rosagrata

5. Factors influencing price setting
The extent of demand.
Determining the expected price
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 forecasting.
Copyright  2004 McGraw-Hill Australia Pty Ltd PPTs t/a Marketing: A Practical Approach 5/e by Peter Rix
Slides prepared by: Joe Rosagrata

6. The inverse demand curve
Insert Fig 10.2 page 297
Copyright  2004 McGraw-Hill Australia Pty Ltd PPTs t/a Marketing: A Practical Approach 5/e by Peter Rix
Slides prepared by: Joe Rosagrata

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 298.
Copyright  2004 McGraw-Hill Australia Pty Ltd PPTs t/a Marketing: A Practical Approach 5/e by Peter Rix
Slides prepared by: Joe Rosagrata

8. Other parts of the marketing mix
Product
Stage of life cycle.
Terms of sale.
The product’s end use.
Copyright  2004 McGraw-Hill Australia Pty Ltd PPTs t/a Marketing: A Practical Approach 5/e by Peter Rix
Slides prepared by: Joe Rosagrata

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  2004 McGraw-Hill Australia Pty Ltd PPTs t/a Marketing: A Practical Approach 5/e by Peter Rix
Slides prepared by: Joe Rosagrata

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  2004 McGraw-Hill Australia Pty Ltd PPTs t/a Marketing: A Practical Approach 5/e by Peter Rix
Slides prepared by: Joe Rosagrata

11. Slides prepared by: Joe Rosagrata
Product cost
These are various:
Producer’s cost.
Fixed cost.
Variable cost.
Total cost.
Marginal cost.
Refer to Figure 10.4, page 302.
Copyright  2004 McGraw-Hill Australia Pty Ltd PPTs t/a Marketing: A Practical Approach 5/e by Peter Rix
Slides prepared by: Joe Rosagrata

12. Price-setting methods
Cost-plus—setting price of unit based on total cost plus desired profit; 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  2004 McGraw-Hill Australia Pty Ltd PPTs t/a Marketing: A Practical Approach 5/e by Peter Rix
Slides prepared by: Joe Rosagrata

13. Slides prepared by: Joe Rosagrata
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  2004 McGraw-Hill Australia Pty Ltd PPTs t/a Marketing: A Practical Approach 5/e by Peter Rix
Slides prepared by: Joe Rosagrata

14. Break-even point (chart)
Insert Fig 10.6 page 306
Copyright  2004 McGraw-Hill Australia Pty Ltd PPTs t/a Marketing: A Practical Approach 5/e by Peter Rix
Slides prepared by: Joe Rosagrata

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.
Pricing above competition
Pricing above competition, usually only when the product is distinctive or the seller has acquired prestige.
Copyright  2004 McGraw-Hill Australia Pty Ltd PPTs t/a Marketing: A Practical Approach 5/e by Peter Rix
Slides prepared by: Joe Rosagrata

16. Slides prepared by: Joe Rosagrata
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  2004 McGraw-Hill Australia Pty Ltd PPTs t/a Marketing: A Practical Approach 5/e by Peter Rix
Slides prepared by: Joe Rosagrata

17. 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  2004 McGraw-Hill Australia Pty Ltd PPTs t/a Marketing: A Practical Approach 5/e by Peter Rix
Slides prepared by: Joe Rosagrata

18. Slides prepared by: Joe Rosagrata
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  2004 McGraw-Hill Australia Pty Ltd PPTs t/a Marketing: A Practical Approach 5/e by Peter Rix
Slides prepared by: Joe Rosagrata

19. Slides prepared by: Joe Rosagrata
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  2004 McGraw-Hill Australia Pty Ltd PPTs t/a Marketing: A Practical Approach 5/e by Peter Rix
Slides prepared by: Joe Rosagrata

20. 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  2004 McGraw-Hill Australia Pty Ltd PPTs t/a Marketing: A Practical Approach 5/e by Peter Rix
Slides prepared by: Joe Rosagrata

21. 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  2004 McGraw-Hill Australia Pty Ltd PPTs t/a Marketing: A Practical Approach 5/e by Peter Rix
Slides prepared by: Joe Rosagrata

22. Legal and ethical pricing
Freight costs and geographic pricing
Marketers need to take into account costs involved in shipping goods to buyers.
Alternatives strategies:
Buyer pays freight costs.
Seller bears cost of freight.
Both parties share freight cost.
Copyright  2004 McGraw-Hill Australia Pty Ltd PPTs t/a Marketing: A Practical Approach 5/e by Peter Rix
Slides prepared by: Joe Rosagrata

23. Legal and ethical pricing
Point-of-production pricing
Commonly known as FOB (free on board) and referring to export sales where the seller paid to have goods loaded on board ship and the buyer paid for the cost of freight, ex-factory or factory gate pricing.
Copyright  2004 McGraw-Hill Australia Pty Ltd PPTs t/a Marketing: A Practical Approach 5/e by Peter Rix
Slides prepared by: Joe Rosagrata

24. 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  2004 McGraw-Hill Australia Pty Ltd PPTs t/a Marketing: A Practical Approach 5/e by Peter Rix
Slides prepared by: Joe Rosagrata

25. 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  2004 McGraw-Hill Australia Pty Ltd PPTs t/a Marketing: A Practical Approach 5/e by Peter Rix
Slides prepared by: Joe Rosagrata

26. 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  2004 McGraw-Hill Australia Pty Ltd PPTs t/a Marketing: A Practical Approach 5/e by Peter Rix
Slides prepared by: Joe Rosagrata

27. 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  2004 McGraw-Hill Australia Pty Ltd PPTs t/a Marketing: A Practical Approach 5/e by Peter Rix
Slides prepared by: Joe Rosagrata