1. INTRODUCTORY MARKETING Pricing M. Louise Ripley, MBA, PhD

2. PRICING LECTURE Questions We Will Answer u How is pricing part of Marketing Strategy? u How is pricing affected by Cost, Demand, Competition? u How do you set a price?

3. KEY FACTORS IN PRICING u Objectives u Strategies u Policies and Constraints u Tactics

4. PRICING OBJECTIVES u Cost u Demand u Competition

5. PRICING OBJECTIVES COST ORIENTED u Emphasis - Cost/Profit l Target Return l Satisfactory Return l Maximize Current Profit l Maximize Long Term Profit

6. COST CALCULATION: How real is this price? uEstimate demand function Q = 1000 - 4P uEstimate cost function C = 6000 + 50Q uCalculate total revenues R = P(1000-4P) uCalculate Profits l Z = (1000P - 4P 2 ) - (6000 + 50Q) l Z = -56,000 + 12,000P - 4P 2 = $150

7. PRICING OBJECTIVES DEMAND ORIENTED u Emphasis - Demand/Sales u Growth in Market Share u Growth in Dollar or Unit Sales

8. PRICING OBJECTIVES DEMAND ORIENTED u How to Grow in Sales

9. Skimming the Cream u Conditions: m Demand Not Sensitive to Price m Different Price Segments m Consumers Unaware of Cost m Little Competition

10. Skimming the Cream - High Price u MAYORS FOUNTAIN PEN $500? Their Advertising Claim: For the average lifestyle, the average writing instrument is perfectly adequate. But while most pens are designed for signing postcards, ours are designed for signing peace treaties.

11. Skimming the Cream continuing the strategy... u High Price First u Lower Price Later l Dupont: Cellophane, Nylon l Polaroid: Camera

12. PRICING OBJECTIVES DEMAND ORIENTED u How to Grow in Sales l Skimming the Cream l Penetration Pricing

13. PRICING OBJECTIVES DEMAND ORIENTED u Penetration Pricing - Low Price u Conditions: m Demand is Price Sensitive m No Different Price Segments m Product Not A Status Item m Competition Likely

14. Penetration Pricing u Regular Penetration Pricing The Colt Car Sells at regular low price

15. Penetration Pricing Special Condition Nabiscos New Giggles Cookies 20 cents off coupon for a short time only

16. PRICING OBJECTIVES COMPETITION ORIENTED u Emphasis - Competition/Status Quo l Meeting the Competition l Non-Price Competition

17. BREAK EVEN ANALYSIS BEP = $30,000/($1.20-$0.80) = 75,000 units $Sells at $1.20 VC = $0.80 FC = $30,000 Units Break Even Point = 75,000 units

18. PRICING STRATEGIES u Mixing Price with the Other Variables uLiterally Thousands of Combinations

19. Marketing Mix Combinations Just One: Price and Quality P High MediumLow Q HighP remium Penetration Big Bargain Medium Overpriced AverageBargain Low Hit & Run ShoddyCheap

20. PRICING STRATEGIES u Cost u Demand u Competition

21. PRICING STRATEGIES COST ORIENTED u Target Profit Pricing uMark-Up Pricing

22. PRICING STRATEGIES COST ORIENTED u Problems l Difficulties Determining Cost

23. Mark- Up Pricing Problems: What is Mark-up? 13%? 53%?

24. PRICING STRATEGIES COST ORIENTED u Problems l Difficulties Determining Cost l Legal Problems

25. PRICE FIXING

26. PRICING STRATEGIES DEMAND ORIENTED u Perceived Value

27. PRICING STRATEGIES DEMAND ORIENTED u Perceived Value u Demand Differential

28. PRICING STRATEGIES DEMAND ORIENTED u Perceived Value u Demand Differential l Customer Form

29. PRICING STRATEGIES DEMAND ORIENTED u Perceived Value u Demand Differential l Customer Form

30. PRICING STRATEGIES DEMAND ORIENTED u Perceived Value u Demand Differential l Customer Form l Product Form

31. LEGAL PRODUCT FORM PRICE DISCRIMINATION u TV without stereo sells for $250 u TV with $5 worth of stereo parts sells for $350

32. PRICING STRATEGIES DEMAND ORIENTED u Perceived Value u Demand Differential l Customer Form l Product Form l Place

33. PRICING STRATEGIES DEMAND ORIENTED u Perceived Value u Demand Differential l Customer Form l Product Form l Place

34. PRICING STRATEGIES DEMAND ORIENTED u Perceived Value u Demand Differential l Customer Form l Product Form l Place l Time

35. PRICING STRATEGIES DEMAND ORIENTED u Perceived Value u Demand Differential l Customer Form l Product Form l Place l Time

36. PRICING STRATEGIES COMPETITION ORIENTED u Going Rate uSealed Bid

37. PRICING OBJECTIVES and STRATEGIES u Cost u Demand u Competition

38. PRICING POLICIES AND CONSTRAINTS u Management u Distributors u Competitors u Suppliers u Company Executives u Stockholders u Government regulations

39. PRICING TACTICS u Psychological Pricing m Odd - Even: $69.95 m Price Lining

40. PRICE LINING MENS SUITS u as seen by the wearer of a $500 suit: cheapGOODoverpriced $300 $500 $700 u as seen after a 10% price increase: cheapGOODoverpriced $330 $550 $770

41. PRICING TACTICS u Psychological Pricing l Odd - Even Pricing l Price Lining l Prestige Pricing

42. PRESTIGE PRICING BAYER

43. PRICING TACTICS u Psychological Pricing l Odd - Even Pricing l Price Lining l Prestige Pricing l Promotional Pricing

44. ILLEGAL PROMOTIONAL PRICING Original Price$250 Illegal Pricing: Was $350 Now Only $300!!

45. PRICING TACTICS u Discount Pricing l Quantity l Cash l Trade/Functional l Seasonal l Consumer - everything else?

46. KEY FACTORS IN PRICING u Objectives l Cost, Demand, Competition u Strategies l Cost, Demand, Competition u Policies and Constraints u Tactics

47. PRICING LECTURE SUMMARY u How is pricing part of Marketing Strategy? u How is pricing affected by Cost, Demand, Competition? u How do you set a price? u Real World Story - Earmuffs tape