1. Pricing in the Marketing Mix

2. Effects of Price of Good (A) Quantity Demanded for “own” product (A) Demand for Substitute (B) (+) Demand for Complement (C) (-) –In use or in purchase Cost structure (of A, B or C) (+/-) Image of the product line (A 1, A 2, …) (+/-) Image of the company (+/-) Potential for cannibalization (+/-) Marginal Analysis Critical

3. Behavioral Responses to Interactions Loss Leaders (use price of one product to sell another product) –Frequent Purchase –Price Sensitive Product Line Cover (top of the line enhances image of the second in line) Marginal Analysis (upgrade cost) Adjust marginal revenue/contribution margin in analysis

4. Behavioral Responses to Interactions (2) Product selection adjustments –High end priced higher –Low end priced lower Versioning (complements over time) Good vs service Product Positioning (price and product for niche) Don’t overestimate price sensitivity

5. Effects on Pricing of Interrelatedness Price higher if substitute of another product of yours (CM = CM A + CM B * interaction) Price lower if complement of another product of yours (CM = CM A - CM B * interaction) Measure Interrelationship, if possible Segmentation Fences affect interrelatedness Product prices should account for future service revenue (or cost) Pricing responsibility should not be too fragmented Optimal price rises with CM of substitute

6. Pricing and Promotion Advertising increases price sensitivity –Cost advantage, is good –Increases gain or loss from Price Change Short run response includes option of timing Advertising more effective with low price Unique features must be sold Penetration goo d with commodities Marginal analysis with advertising budget Δ Advert / CM

7. Price as promotion Intro –Trial sizes –Leases –Coupons (cost/redemption rates) –Specially marked packages –Rebates (size, less fraud, cheaper, marketing research) –Trade discounts Keys –Don’t affect reference value –Decrease cost to consumer –Limit discount to first time buyers

8. Price as promotion (2) Defensive dealing –May be costly (decrease P to all to defend a few) –Must neutralize competitive thrust –High CM, deal until response –Frequent dealing affects reference price –Advertising may be more effective Trade dealing –Uses distribution network