1. Marketing Management Dawn Iacobucci
© 2010 South-Western, a part of Cengage Learning

2. Pricing
Chapter 8

3. Pricing Pricing allows the company to obtain feedback from customers
Pricing is easier to change than the other marketing mix variables
Pricing sends a signal regarding the positioning and image of the brand

4. Pricing The 3 C’s impact pricing Company’s cost
Customers’ sense of product’s value
Competition’s price

5. Skimming vs. Penetration
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6. Pricing Strategies Low Cost-plus pricing: mark up above average cost
Loss leader: sell below cost to bring in customers for other products
Penetrate market: price low to attract volume
Nearly predatory: price so low to discourage competitors

7. Pricing Strategies (continued)
Medium
Competitive: “What’s the going rate?”
Price slightly below for perception of good value
Price slightly above if you offer more benefits, or have any brand equity

8. Pricing Strategies (continued)
High
Skim market: price high for margins, not worrying about volume yet
Prestige or status pricing: price high for image appeals
Price high due to real quality differences or true rarity

9. Demand
Profit increases when price increases; however, demand tends to decrease as price increases
Need to find happy medium

10. Demand Increases… With increased customer’s desire
With favorable perceptions of the product’s benefits or brand image
If competitors’ brands aren’t favorable
If there are few good substitutes
If substitutes are priced even higher

11. Elasticity by Segment Elasticity can vary by customer segment
Deal prone vs. Brand Loyal

12. Demand is More Elastic When…
Customers don’t care about the purchase
Customers don’t have strong preferences
Item is a luxury rather than a necessity
Many substitutes are available
When household incomes are lower
It is easier to compare prices

13. Price Has Many Strategy Dimensions
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Price Flexibility
Price Levels Over Product Life Cycle
Key
Pricing
Policies
Discounts & Allowances – To Whom & When
Transportation Costs – Who Pays & How 6

14. Objectives Should Guide Strategy Planning for Price
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15. Objectives Should Guide Strategy Planning for Price
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16. Objectives Should Guide Strategy Planning for Price
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17. Discount Policies: Reductions from List Prices
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Quantity
(cumulative and non-cumlative)
Seasonal
(encourage buyers to buy sooner)
From
List Price
Sale (reduce list price temporarily to encourage immediate buying)
Cash
(2/10 net 30)
Trade (reductions in list price given to channel members that perform one or more marketing functions for the producer) 19

18. Allowance Policies – Off List Prices
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Advertising (price reductions given to firms in channel to promote the supplier’s product locally)
Stocking (slotting allowances to get shelf space)
Common Types of Allowances
Trade-Ins (price reduction to used products when similar new products are bought)
Push Money (incentives to salesclerks to sell the targeted items) 20

19. List Price May Depend on Geographic Pricing Policies
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F.O.B. (free on broad—seller pays to have product loaded on a transportation vehicle at which time the title is transferred to buyer, who pays shipping and is responsible for the product at that point)
Zone (delivered prices apply the average freight charge to all customers in same specified geographic area)
Common Geographic Policies
Freight Absorption (pays cost of shipping)
Uniform Delivered (one price to all buyers)

20. Legality of Pricing Policies
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Legality of Pricing Policies
Unfair Trade Practice Acts (puts a lower limit on prices)
Dumping (pricing a product sold in a foreign market below the cost of producing it in its domestic market)
Key Issues
Price Fixing (competitors getting together to raise, lower, or stabilize prices)
Phony List Prices (suggest that the price has been discounted from list)

21. “Proportionately Equal” Basis
Price Discrimination--selling the same products to different buyers at different prices--if it injures competition.
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Robinson-Patman Act
“Like Grade & Quality”
Key Issues
“Proportionately Equal” Basis
Cost Differences
Meeting Competition 30

22. The Marketing Manager Must Consider Various Kinds of Costs
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Total Variable Cost
Total Fixed Cost
Total Cost
Average Variable Cost
Average Cost
Average Fixed Cost 11

23. Average Cost Pricing Is Common and Can Be Dangerous
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24. Breakeven Analysis Breakeven
Number of units needed to sell to cover costs

25. Break-Even Analysis Can Evaluate Possible Prices
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26. Marginal Analysis Considers Both Costs and Demand
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27. More Demand-Oriented Methods
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Value-in-Use
Types of Demand-Oriented Pricing
Auctions
Sequential Reductions
Reference
Leader & Bait 23

28. More Demand-Oriented Methods
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Value-in-Use
Types of Demand-Oriented Pricing
Prestige
Auctions
Sequential Reductions
Demand-Backward
Price Lining
Reference
Odd-Even
Leader & Bait
Psychological 25

29. Prices Ending in 9
Prices like $4.99 or $49.99 tend to be more attractive than $5 or $50.
People read right to left; thus, the 4 is processed first and leaves an impression

30. Reference Prices
People compare price to some referent, either an externally available price or an internally stored price

31. Bid Pricing and Negotiated Pricing Depend Heavily on Costs
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New Prices for Every Job
Ethical Issues
Consider Demand
Negotiated Prices 30

32. Study Question 1
Lee is the product manager for a software program sold by Company ABC. In evaluating the product, Lee determines that something just isn’t right with how the software program is marketed to potential customers, and he feels a change is necessary. Which of the following marketing mix variables is easiest for Lee to change?
a. Promotion
b. Place
c. Price
d. Product C

33. Study Question 2
Company XYZ manufactures quality widgets, but does not invest a significant effort in marketing the company or its widgets. If Company XYZ were to develop a _____, one of the benefits it would realize is the ability to charge premium prices.
a. company
b. marketing strategy
c. product
d. brand D

34. Profit maximization occurs when marginal revenue equals
Study Question 3
Profit maximization occurs when marginal revenue equals
a. marginal profit.
b. marginal cost.
c. marginal sale.
d. none of these. B

35. d. Price discrimination
Study Question 4
_____ is the idea is that the price (on the sticker) is much higher than the referent.
a. Price fixing
b. Predatory pricing
c. Sticker shock
d. Price discrimination C

36. Study Question 5
An agreement between two or more firms on what price to charge, which reduces the usual effects of competition with respect to driving prices and profits down, is called
a. predatory pricing.
b. deceptive pricing.
c. vertical price fixing.
d. price fixing. D

37. Video D