1. © 2004 Mark H. Hansen PRICING STRATEGY

2. Pricing Strategy © 2004 Mark H. Hansen 2 Pricing and Value Value = Perceived Benefits – Perceived Costs Value to the Customer: The Marketer Can: adjust the cost to customers (price) adjust the perceived benefits to customers (value-added)

3. Pricing Strategy © 2004 Mark H. Hansen 3 Rational vs. Irrational Customer Response to Pricing rational assumes full information price decline = quantity increase irrational recognizes that people respond in ‘human’ ways price increase, sometimes, = quantity increase When?

4. Pricing Strategy © 2004 Mark H. Hansen 4 Pricing Objectives Survival Profit Sales Market Share Image These objectives are not mutually exclusive!

5. Pricing Strategy © 2004 Mark H. Hansen 5 Price Competition marketers realize that price competition is something to be avoided in most cases price competition usually results in a downward spiral that is difficult to stop marketers would typically prefer non-price competition (service, convenience, selection, etc.) lower pricing is not always smarter pricing

6. Pricing Strategy © 2004 Mark H. Hansen 6 Price Competition meet competition price above competition (premium pricing) price below competition Pricing policy is easily copied!

7. Pricing Strategy © 2004 Mark H. Hansen 7 New Product Pricing Penetration vs. Skimming penetration = setting a low price to get quick acceptance and market share skimming = setting price high and attracting only those customers that are willing to pay price discrimination

8. Pricing Strategy © 2004 Mark H. Hansen 8 Price Lining & Price Points separate prices far enough to create cognitive distance in consumers’ minds different price points indicate quality differences (real or perceived) Does your kid have a $70 head or a $350 head?

9. Pricing Strategy © 2004 Mark H. Hansen 9 Price Flexibility Multiple ways to adjust price to influence behavior quantity discounts seasonal discounts cash discounts trade discounts personal discounts trade-in allowances

10. Pricing Strategy © 2004 Mark H. Hansen 10 Psychology of Pricing prestige pricing odd prices vs. even prices customary prices

11. Pricing Strategy © 2004 Mark H. Hansen 11 Setting Prices mark-ups mark-up on sales vs. mark-up on cost cost plus pricing break even analysis target rates of return

12. Pricing Strategy © 2004 Mark H. Hansen 12 Setting Prices demand oriented pricing (predictor of sales) value-based pricing what the market will bear

13. Pricing Strategy © 2004 Mark H. Hansen 13 Summary… …pricing signals quality …pricing influences perceptions of product and marketer …setting price is an art that may be influenced by science … setting price is critical to success

14. Pricing Strategy © 2004 Mark H. Hansen 14