1. PRICING PROGRAMS

2. Marketing Strategies and Pricing Objectives b Primary Demand Strategies increase number of usersincrease number of users increase rate of purchaseincrease rate of purchase Reduce economic risk of trial Offer better value than competing product forms/classes Enhance frequency of consumption Enable use in wider rate of situations

3. b Selective Demand Strategies RetentionRetention AcquisitionAcquisition Meet competition (establish price parity) Undercut competition on price Use price to signal premium quality

4. b Product-line Strategies SubstitutesSubstitutes ComplementsComplements Get buyers to “trade-up” Distinguish product-line alternatives on value/features Expand range of products bought by existing customers Attract new customers on superior value of a system or package of products

5. Different Types of Elasticity

6. Market Segment Demand Schedules

7. Illustration of Market Demand Curve $350 $325 $300 Price 1020304050 Quantity (in thousands) NonBusTotal

8. Factors Suggesting Elastic Market Demand b Many alternative product forms or classes exist for which the product can be substituted b Only a small percentage of potential buyers currently purchase or own the product because of the price and because the product represents a discretionary purchase b The rate of consumption or the rate of replacement can be increased through lower prices

9. Factors Suggesting Elastic Company Demand b Buyers have and are aware of a large number of alternatives b Quality differences do not exist or are not perceived b The supplier or brand can be changed easily and with minimal efforts or costs

10. Basic Types of Pricing Programs ¶ Penetration pricing · Parity pricing ¸ Premium pricing

11. Conditions Favouring Penetration Pricing b Market demand is elastic b Company demand is elastic and competitors cannot match our price because of cost disadvantages b The firm also sells higher margin complementary products b A large number of strong potential competitors exist b Extensive economies of scale exist so that a variable-cost approach can be used to set the minimum price b The pricing objective is to accomplish either of the following: build primary demandbuild primary demand acquire new customers by undercutting competitionacquire new customers by undercutting competition

12. Conditions Favouring Parity Pricing b Market demand is inelastic and company demand is elastic b The firm has no cost advantages over competitors b There are no expected gains from economies of scale so that the price floor is based on fully allocated costs b The pricing objective is to meet the competition

13. Conditions Favouring Premium Pricing b Company demand is inelastic b The firm has no excess capacity b There are very strong barriers to entry b Gains from economies of scale are relatively minor so that the full-cost method is used to determine the minimum price b The pricing objective is to attract new customers based on quality

14. Pricing Programs for Complementary Products b Leader pricing b Price bundling Mixed leader bundlingMixed leader bundling Mixed joint bundlingMixed joint bundling

15. PRICING PROGRAMS Penetration Parity Premium CONTRIBUTION TO ACHIEVING MARKETING STRATEGY CROSS-ELASTICITY Substitutes Complements COMPETITORS’ ACTIONS COSTS AND PROFITABILITY ELASTICITY OF DEMAND Considerations Involved in a Pricing Program

16. PRICING PROGRAMS SALES AND DISTRIBUTION PROGRAMS DIRECT MARKETING AND SALES PROMOTION PROGRAMS ADVERTISING PROGRAMS SITUATION ANALYSIS MARKETING STRATEGY Pricing Objectives Elasticity of Demand Competitive Situation Cost Factors Penetration Parity Premium International Considera- tions Price Level Legal Considera- tions Product- line Factors Pricing Programs