1. Developing Pricing Strategies and Programs Key Concepts

2. Marketing Management at Gillette Commands a 70% share of the global market for razors and blades and charges premium prices.

3. Pricing Re-Considerations Focusing on costs and striving for the industry’s traditional margins. Not revising price often enough to capitalize on market changes. Setting price independently rather than as an intrinsic element of market-positioning strategy. Not varying price enough for different products, segments, channels, and purchase occasions.

4. Marketing Skills: Giving It Away? “Freemium” strategy — giving some offering away for free while profiting from extras that are priced appropriately. SKYPE—free Internet calling but charges for calls made to non-Internet phones. Ryannair—fly free, pay for everything else.

5. Consumer Psychology and Pricing Price-quality inferences Reference prices Price cues

6. Steps in Setting Price Policy Select the objective Determine demand Estimate costs Select the final price Analyze competitors

7. Step 1: Selecting the Pricing Objective Survival Maximum current profit Maximum market share Product-quality leadership Maximum market skimming

8. Step 2: Determining Demand Price sensitivity Estimating demand curves Survey consumers Set different prices in similar territories Statistical analysis of past prices, quantities sold, and other factors Price elasticity of demand Inelastic—small change in demand with small change in price. Elastic— considerable change in demand with small change in price.

9. Step 3: Estimating Costs Fixed costs Variable costs Total costs Average cost

10. The Experience Curve

11. Target Costing Establish a new product’s desired functions, the price at which it will sell, and the desired profit margin.

12. Step 4: Analyzing Competitors’ Costs, Prices, and Offers Does the firm offer features not offered by competitors? Given this point of comparison, should the price be higher, lower, or the same?

13. Step 5: Selecting a Pricing Method The three Cs in selecting a price: Customers’ demand schedule Cost function Competitors’ prices

14. Price-Setting Methods Markup pricing Target-return pricing Perceived-value pricing Value pricing Going-rate pricing Auction-type pricing

15. Break-Even Chart

16. Breakthrough Marketing: eBay $7.3 billion in annual sales. It’s not all rosy worldwide, though!

17. Step 6: Selecting the Final Price Factors to consider: Impact of other marketing activities Company pricing policies Gain-and-risk sharing pricing Impact of price on other parties

18. Price Adaptation Strategies Geographical pricing Price discounts and allowances Promotional pricing Product-mix pricing Differentiated pricing

19. Geographical Pricing Barter Compensation deal Buyback arrangement Offset

20. Price Discounts and Allowances Discounts—price reductions Cash Quantity Functional Seasonal Allowance—extra payment

21. Promotional Pricing Loss-leader pricing Special-event pricing Cash rebates Low-interest financing Longer payment terms Warranties and service contracts Psychological discounting

22. Differentiated Pricing Customer-segment pricing Product-form pricing Image pricing Channel pricing Location pricing Time pricing

23. Product-Mix Pricing Product-line Optional-feature Captive-product Two-part By-product Product-bundling

24. Product-Mix Pricing Product-line Optional-feature Captive-product Two-part By-product Product-bundling

25. Traps of Price-Cutting Customers assume quality is low. A low price buys market share but not loyalty. Higher-priced competitors match the lower prices but have longer staying power because of deeper cash reserves. Trigger a price war.

26. Increasing Prices Delayed quotation pricing Escalator clauses Unbundling Reduction of discounts

27. How to Respond to Low-Cost Rivals