1. Copyright John Wiley & Sons 2007 Presentation prepared by Robin Roberts, Griffith University and Mike Spark, Swinburne University of Technology

2. Copyright John Wiley & Sons 2007 Chapter 11 Pricing management

3. Copyright John Wiley & Sons 2007 Chapter 11 Chapter Objectives 1.Understand the six major stages of the process used to establish prices 2.Know the issues that are related to developing pricing objectives 3.Understand the importance of identifying the target market’s evaluation of price 4.Describe how marketers analyse competitive prices

4. Copyright John Wiley & Sons 2007 Chapter 11 Chapter Objectives 5.Discuss the bases used for setting prices 6.Explain the different types of pricing strategies 7.Understand how a final, specific price is determined

5. Copyright John Wiley & Sons 2007 Chapter 11 How important is pricing in the airline industry? Darren Wright, National Marketing Manager - Virgin Blue Dial-UpBroadband

6. Copyright John Wiley & Sons 2007 Chapter 11 Selecting a pricing strategy Selecting a pricing strategy is one of the fundamental components in the process of setting prices There is a six-stage process that marketers can use when setting prices These stages are not rigid steps; rather they are logical guidelines

7. Copyright John Wiley & Sons 2007 Chapter 11 Stages for establishing prices

8. Copyright John Wiley & Sons 2007 Chapter 11 Stage 1: The development of pricing objectives Pricing objectives are goals that describe what a firm wants to achieve through pricing Form the basis for decisions about other stages of pricing Must be consistent with the firm’s overall marketing objectives Can use one or multiple objectives (which can be both short-term and long-term)

9. Copyright John Wiley & Sons 2007 Chapter 11 Stage 1: The development of pricing objectives (cont’d) Some of the pricing objectives that companies might set for themselves are: –Survival –Profit –Return on investment –Market share –Cash flow –Status quo –Product quality

10. Copyright John Wiley & Sons 2007 Chapter 11 Stage 2: Assessment of the target market’s evaluation of price The importance of price depends on –Type of product and target market –purchase situation Value focus –Combines a product’s price and quality attributes, which –Customers use to differentiate among competing brands. –Helps marketers correctly assess the target market’s evaluation of price

11. Copyright John Wiley & Sons 2007 Chapter 11 Stage 3: Evaluation of competitors’ prices Sources of competitors’ pricing information: –Comparative shoppers: persons who systematically collect data on competitors’ prices Importance of knowing competitors’ prices: –Helps determine how important price will be to customers –Helps marketers in setting competitive or appropriate prices for their products

12. Copyright John Wiley & Sons 2007 Chapter 11 Stage 4: Selection of a basis for pricing The 3 major dimensions on which prices can be based are: 1.Cost-based pricing 2.Demand-based pricing 3.Competition-based pricing

13. Copyright John Wiley & Sons 2007 Chapter 11 Stage 4: Selection of a basis for pricing (cont.) The selection of the basis for pricing to use is affected by: –Type of product –Market structure of the industry –Brand’s market share relative to competing brands –Customer characteristics

14. Copyright John Wiley & Sons 2007 Chapter 11 What is the basis for pricing being used by Aussie Home Loans? Dial-UpBroadband

15. Copyright John Wiley & Sons 2007 Chapter 11 Stage 4 review question … Has Aussie Home Loans used a price skimming or penetration strategy?

16. Copyright John Wiley & Sons 2007 Chapter 11 Stage 4: Selection of a basis for pricing (cont’d) –Cost-based pricing Adding a dollar amount or percentage to the cost of the product –Cost-plus pricing Adding a specified dollar amount or percentage to the seller’s cost –Markup pricing Adding to the cost of a product a predetermined percentage of that cost

17. Stage 4: Selection of a basis for pricing (cont’d)

18. Copyright John Wiley & Sons 2007 Chapter 11 Demand-based pricing –Customers pay a higher price when demand for a product is strong, and a lower price when demand is weak –Effectiveness depends on marketer’s ability to estimate demand accurately Stage 4: Selection of a basis for pricing (cont’d)

19. Competition-based pricing –Pricing is influenced primarily by competitors’ prices –Importance increases when competing products are relatively homogeneous Stage 4: Selection of a basis for pricing (cont’d)

20. Copyright John Wiley & Sons 2007 Chapter 11 How do you determine your pricing? Geoff Rollason- Chief Financial Officer - Story Bridge Adventure Climb Dial-UpBroadband

21. Copyright John Wiley & Sons 2007 Chapter 11 A pricing strategy is an approach or a course of action designed to achieve pricing and marketing objectives Stage 5: Selection of a pricing strategy

22. Copyright John Wiley & Sons 2007 Chapter 11 Common pricing strategies

23. Copyright John Wiley & Sons 2007 Chapter 11 Stage 5: Selection of a pricing strategy (cont’d) Differential pricing – means charging different prices to different buyer for the same quality and quantity of product Negotiated pricing Secondary-market pricing Periodic discounting Random discounting

24. Copyright John Wiley & Sons 2007 Chapter 11 New-product pricing – setting the base for a new product is a necessary part of formulating a marketing strategy Price skimming – go high early Penetration pricing – go low early Stage 5: Selection of a pricing strategy (cont’d)

25. Copyright John Wiley & Sons 2007 Chapter 11 Which new product pricing strategy is being used by Xbox? Dial-UpBroadband

26. Copyright John Wiley & Sons 2007 Chapter 11 Stage 5: Selection of a pricing strategy (cont’d) Product-line pricing means establishing and adjusting prices of multiple products within a product line Captive pricing – low main price with high prices for extras Premium pricing – high quality & price Bait pricing – pricing to get them in, then trade up to higher item Price lining – various product groups

27. Copyright John Wiley & Sons 2007 Chapter 11 Stage 5: Selection of a pricing strategy (cont’d) Psychological pricing attempts to influence a customers perception of price t make a product’s price more attractive Reference pricing Bundled pricing Multiple-unit pricing Everyday low prices (EDLP) Odd-even pricing Customary pricing Prestige pricing

28. Copyright John Wiley & Sons 2007 Multiple-unit pricing

29. Copyright John Wiley & Sons 2007 Chapter 11 Stage 5: Selection of a pricing strategy (cont’d) Professional pricing Used by people with great skill or experience in a particular field. Promotional pricing Price leaders – below usual to attract Special-event pricing – link price to time or event Comparison discounting – set at a level then compare to higher price

30. Copyright John Wiley & Sons 2007 Chapter 11 After determining a pricing strategy that yields a certain price, the price may need refinement to make it consistent with pricing practices in the particular market or industry The way pricing is used in the marketing mix will affect the final price Only a recommended retail price can be quoted to resellers Stage 6: Determination of a specific price

31. Copyright John Wiley & Sons 2007 Chapter 11