1. Developing Pricing Strategies and Programs

2. Synonyms for Price Rent Tuition Fee Fare Rate Toll Premium Honorarium
Special assessment
Bribe
Dues
Salary
Commission
Wage
Tax

3. The Internet Changes the Pricing Environment By Providing Information
Buyers
Get Instant price comparison from thousands of vendors
Name their price and have it met
Get products free
Sellers
Monitor customer behaviour and tailors offers to an individual
Give certain customers access to special prices
Both Buyers and Sellers
Negotiate price in online auctions

4. Common Pricing Mistakes
Determine costs and take traditional industry margins
Failure to revise price to capitalize on market changes
Setting price independently of the rest of the marketing mix
Failure to vary price by product item, market segment, distribution channels, and purchase occasion

5. Consumer Psychology and Pricing
Reference Prices: Pricing information a consumer retains in memory that is used to interpret and evaluate a new price
Price-quality inferences: Many consumers use price as an indicator of quality.
Price endings: Sellers believe price end in odd number.
Price cues: Any marketing tactic used to persuade customers that prices offer good value compared to competitors' prices, past prices or future prices.

6. Steps in Setting Price Select the price objective Determine demand
Estimate costs
Analyze competitor price mix
Select pricing method
Select final price

7. Step 1: Selecting the Pricing Objective
Survival: Short term strategy to overcome overcapacity, intense competition, or changing consumer wants Objective should be to cover all variable costs and if possible some fixed costs
Maximize Current Profit: cash flow or return on investment
Maximum Market Share: (market-penetration pricing) – Assuming high price sensitivity, firms will lower price which should precipitate a dramatic increase in volume.

8. Step 1: Selecting the Pricing Objective
Market Skimming - appeals to high-end market segments, early adopter segments especially in rapidly changing technology markets (e.g. phones, tablets). Prices start high and drop lower over time. Good strategy when:
A sufficient number of buyers have a high current demand
Unit costs of producing a small volume are not so high that they cancel the advantage of charging what the market will bear

9. Step 1: Selecting the Pricing Objective
Initial high price does not attract competitors
High price communicates the image of a superior product
Product-Quality Leadership - premium quality connotes premium price

10. Step 2: Determining Demand
Price Sensitivity - some characteristics associated with decreased price sensitivity
Customers are less sensitive to low-cost items or items purchased infrequently
Seller can charge a higher price than competitors if customers are convinced it offers a lower total cost of ownership (TCO)
Internet has potential to increase price sensitivity but must also target non-price-sensitive consumers as well as to not leave “money on the table”

11. Factors Leading to Less Price Sensitivity
The product is more distinctive
Buyers are less aware of substitutes
Buyers cannot easily compare the quality of substitutes
Expenditure is a smaller part of buyer’s total income
Expenditure is small compared to the total cost
Part of the cost is paid by another party
Product is used with previously purchased assets
Product is assumed to have high quality and prestige
Buyers cannot store the product

12. Step 2: Determining Demand
Estimating Demand Curves – several different methods of measurements
Conduct surveys – information somewhat subjective
Experiment by changing prices for same product without alienating consumers or violating regulatory requirements
Statistically analyze past prices, quantities sold and other factors to gain understanding of price/demand relationships

13. Step 2: Determining Demand
Price elasticity of demand
Determination of the affect of a change in price on overall demand
If demand changes considerably with a change in price, it is elastic. If demand does not change significantly or in parallel with the price, it is inelastic
Long-run price elasticity – buyers continue to purchase from current supplier after a price increase but eventually switch suppliers.

14. Step 3: Estimating Costs
Types of Costs and Levels of Production - fixed, variable, total, and average costs
To price intelligently, companies need to know its costs with different levels of production
To estimate the real profitability of selling to different types of retailers or customers, firms should use activity-based-cost (ABC) accounting instead of standard cost accounting

15. Step 3: Estimating Costs
Accumulated Production
Average cost falls with accumulated production experience also referred to as experience curve or learning curve
Experience-curve pricing can be risky because aggressive pricing might create a cheap image
Advantages from experience curve may lead to expansion which is a risk if there is a major technology improvement which eliminates competitive advantage and passes the advantage to other firms who adopt new technology rendering current technology obsolete

16. Step 3: Estimating Costs
Target costing - determine price that must be charged according to market research

17. Analyzing Competitor’s Costs

18. Step 5: Selecting a Pricing Method
Markup pricing: Standard mark-up, but can vary according to product categories. Markup price = unit cost / (1 – desired return on sales)
Target return pricing: To make a fair return on investment. Target-return-price = unit cost/(desired return X invested capital)/unit sales.

19. Step 5: Selecting a Pricing Method
Perceived value pricing - based on buyer perceptions. Many firms are now adopting this approach.
Value pricing – fairly low price for a high quality offering
Everyday low pricing (EDLP),no promotions and no change to price. This eliminates week-to-week price uncertainty. The reason firms have adopted this price strategy is that constant sales and promotions are costly and have eroded consumer confidence in everyday shelf prices.
High-low pricing – Charge higher prices on an everyday basis but run frequent promotions with prices temporarily lower than the EDLP level.

20. Step 5: Selecting a Pricing Method
Going rate pricing - base price on that of competitors
(“follow the leader”)

21. Auction-Type Pricing
Must qualify supplier pool before using price/cost as major decision variable in B2B situations.
English auction - ascending bids with one seller and many buyers
Dutch auctions (descending bids) – two types
Auctioneer announces a high price for a product and then lowers the price until a bidder accepts
Buyers announce something they want to buy and potential sellers compete to offer the lowest price
Sealed-bid auctions – would-be suppliers submit only one bid and do not know the contents of the other bids. The government uses this method frequently to secure goods and services.

22. Step 6: Selecting the Final Price
The influence of other marketing activities - brand’s quality and advertising relative to the competition (know brands with high quality and high relative advertising can command higher prices)
The influence of other marketing-mix elements - note relationships between relative price, relative quality, and relative advertising

23. Step 6: Selecting the Final Price
Company pricing policies - contemplated price must be consistent
Gain-and-risk sharing pricing - risk losing customers if cannot deliver full promised value
Impact of price on other parties - distributors, sales force, competitors, suppliers, government, etc.

24. Thank you

25. Geographical Pricing
Pricing varies by location

26. Price Discounts and Allowances
Quantity discount
Functional discount
Seasonal discount
Allowance

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

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

29. Methods for Increasing Prices
Delayed quotation pricing
Escalator clauses
Unbundling
Reduction of discounts

30. Brand Leader Responses to Competitive Price Cuts
Maintain price
Maintain price and add value
Reduce price
Increase price and improve quality
Launch a low-price fighter line