1. MARKETING STRATEGY O.C. FERRELL • MICHAEL D. HARTLINE8
Pricing Strategy

2. The Role of Pricing in Marketing Strategy (1 of 2)
The Seller’s Perspective on Pricing
Four key issues:
(1) Costs
(2) Demand
(3) Customer value
(4) Competitors’ prices
The Buyer’s Perspective on Pricing
Two key issues:
(1) Perceived value
(2) Price sensitivity

3. The Role of Pricing in Marketing Strategy (2 of 2)
A Shift in the Balance of Power
Buyer’s market
Large number of sellers in the market
Many substitutes for the product
Economy is weak
Seller’s market
Products are in short supply
High demand
Economy is strong
The Relationship Between Price and Revenue
Myth #1: When business is good, a price cut will increase market share.
Myth #2: When business is bad, a price cut will
stimulate sales.

4. Major Determinants of Pricing Strategy
Pricing Objectives
Supply and Demand
The Firm’s Cost Structure
Competition and Industry Structure
Four basic competitive market structures:
Pure Competition
Monopolistic Competition
Oligopoly
Monopoly
Stage of the Product Life Cycle
Other Elements of the Marketing Mix

5. Regulated Utilities as Monopolies

6. Description of Common Pricing Objectives
Exhibit 8.1

7. Pricing Strategy Over the Product Life Cycle
Exhibit 8.2

8. Price Elasticity of Demand (1 of 2)
Formula for calculating price elasticity:
Situations That Increase Price Sensitivity
Availability of product substitutes
Higher total expenditure
Noticeable differences
Easy price comparison

9. Price Elasticity of Demand
Exhibit 8.3

10. Price Elasticity of Demand (2 of 2)
Situations That Decrease Price Sensitivity
Real or perceived necessities
Lack of product substitutes
Complementary products
Product differentiation
Perceived product benefits
Situational influences
Price Elasticity and Yield Management
Allows simultaneous control of capacity and demand
Control capacity by limiting available capacity at certain price points
Control demand through price changes and overbooking capacity

11. Yield Management for a Hypothetical Model
Exhibit 8.4

12. Discussion Question
Discuss the variety of situational factors that could come into play and impact elasticity in the purchase of each of the following products: a) sporting event or concert tickets, b) staple goods such as milk, eggs, or bread, c) an electric razor, d) eye surgery to improve vision.

13. Pricing Strategies (1 of 2)
Base Pricing Strategies
Price Skimming
Penetration Pricing
Prestige Pricing
Value-Based Pricing (EDLP)
Competitive Matching
Non-Price Strategies
Adjusting Prices in Consumer Markets
Promotional Discounting
Reference Pricing
Odd-Even Pricing
Price Bundling

14. Marketing Strategy in Action
Chrysler’s price skimming strategy for the Pacifica model has not been successful in attracting customers. Why do you think the $40,000 price tag has not been successful for the Pacifica? What do you think Chrysler should do in rethinking its pricing strategy for this model?

15. Price Bundling

16. Pricing Strategies (2 of 2)
Adjusting Prices in Business Markets
Pricing techniques unique to business markets:
Trade discounts
Discounts and allowances
Geographic pricing
Transfer pricing
Barter and countertrade
Price discrimination

17. Fixed vs. Negotiated Pricing
Three pricing levels in a negotiated price situation:
(1) Opening position
(2) Aspiration price
(3) Limit
Guidelines for making concessions:
Avoid being the first side to make a concession
Start with modest concessions and make them smaller as you proceed
Avoid making concessions early in the negotiation
Do not give up anything without something in return

18. Discussion Question
If you were trying to sell your used car through the newspaper, what factors would determine how you might set your opening position, your aspiration price, and your limit during the negotiation process?

19. Major Online Auction Strategies
Exhibit 8.5

20. Legal and Ethical Issues in Pricing
Price Discrimination
Price Fixing
Predatory Pricing
Deceptive Pricing

21. Discussion Question
One of the key decisions that managers often make is to change prices that have been set inappropriately. What issues should be considered in deciding whether it is the price that is wrong, or whether the problem lies in another element of the marketing mix?