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Developing Pricing Strategies and Programs Marketing Management, 13 th ed 14.

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Presentation on theme: "Developing Pricing Strategies and Programs Marketing Management, 13 th ed 14."— Presentation transcript:

1 Developing Pricing Strategies and Programs Marketing Management, 13 th ed 14

2 Copyright © 2009 Pearson Education, Inc. Publishing as Prentice Hall 14-2 Chapter Questions How do consumers process and evaluate prices? How should a company set prices initially for products or services? How should a company adapt prices to meet varying circumstances and opportunities? When should a company initiate a price change? How should a company respond to a competitors price challenge?

3 Copyright © 2009 Pearson Education, Inc. Publishing as Prentice Hall 14-3 Gillette Commands a Price Premium

4 Copyright © 2009 Pearson Education, Inc. Publishing as Prentice Hall 14-4 Synonyms for Price Rent Tuition Fee Fare Rate Toll Premium Honorarium Special assessment Bribe Dues Salary Commission Wage Tax

5 Copyright © 2009 Pearson Education, Inc. Publishing as Prentice Hall 14-5 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

6 Copyright © 2009 Pearson Education, Inc. Publishing as Prentice Hall 14-6 Consumer Psychology and Pricing Reference Prices Price-quality inferences Price endings Price cues

7 Copyright © 2009 Pearson Education, Inc. Publishing as Prentice Hall 14-7 Table 14.1 Possible Consumer Reference Prices Fair price Typical price Last price paid Upper-bound price Lower-bound price Competitor prices Expected future price Usual discounted price

8 Copyright © 2009 Pearson Education, Inc. Publishing as Prentice Hall 14-8 Table 14.2 Consumer Perceptions vs. Reality for Cars Overvalued Brands Land Rover Kia Volkswagen Volvo Mercedes Undervalued Brands Mercury Infiniti Buick Lincoln Chrysler

9 Copyright © 2009 Pearson Education, Inc. Publishing as Prentice Hall 14-9 Tiffanys Price-Quality Relationship

10 Copyright © 2009 Pearson Education, Inc. Publishing as Prentice Hall Price Cues Left to right pricing ($299 vs. $300) Odd number discount perceptions Even number value perceptions Ending prices with 0 or 5 Sale written next to price

11 Copyright © 2009 Pearson Education, Inc. Publishing as Prentice Hall When to Use Price Cues Customers purchase item infrequently Customers are new Product designs vary over time Prices vary seasonally Quality or sizes vary across stores

12 Copyright © 2009 Pearson Education, Inc. Publishing as Prentice Hall Steps in Setting Price Select the price objective Determine demand Estimate costs Analyze competitor price mix Select pricing method Select final price

13 Copyright © 2009 Pearson Education, Inc. Publishing as Prentice Hall Step 1: Selecting the Pricing Objective Survival Maximum current profit Maximum market share Maximum market skimming Product-quality leadership

14 Copyright © 2009 Pearson Education, Inc. Publishing as Prentice Hall Step 2: Determining Demand Price Sensitivity Estimating Demand Curves Price Elasticity of Demand

15 Copyright © 2009 Pearson Education, Inc. Publishing as Prentice Hall Figure 14.2 Inelastic and Elastic Demand

16 Copyright © 2009 Pearson Education, Inc. Publishing as Prentice Hall Table 14.3 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 The expenditure is a smaller part of buyers total income The expenditure is small compared to the total cost of the end product Part of the cost is paid by another party The product is used with previously purchased assets The product is assumed to have high quality and prestige Buyers cannot store the product

17 Copyright © 2009 Pearson Education, Inc. Publishing as Prentice Hall Step 3: Estimating Costs Types of Costs Target Costing Accumulated Production Activity-Based Cost Accounting

18 Copyright © 2009 Pearson Education, Inc. Publishing as Prentice Hall Cost Terms and Production Fixed costs Variable costs Total costs Average cost Cost at different levels of production

19 Copyright © 2009 Pearson Education, Inc. Publishing as Prentice Hall Figure 14.4 Cost per Unit as a Function of Accumulated Production

20 Copyright © 2009 Pearson Education, Inc. Publishing as Prentice Hall Lives Uses Target Costing

21 Copyright © 2009 Pearson Education, Inc. Publishing as Prentice Hall Step 5: Selecting a Pricing Method Markup pricing Target-return pricing Perceived-value pricing Value pricing Going-rate pricing Auction-type pricing

22 Copyright © 2009 Pearson Education, Inc. Publishing as Prentice Hall Figure 14.6 Break-Even Chart

23 Copyright © 2009 Pearson Education, Inc. Publishing as Prentice Hall Auction-Type Pricing English auctions Dutch auctions Sealed-bid auctions

24 Copyright © 2009 Pearson Education, Inc. Publishing as Prentice Hall Step 6: Selecting the Final Price Impact of other marketing activities Company pricing policies Gain-and-risk sharing pricing Impact of price on other parties

25 Copyright © 2009 Pearson Education, Inc. Publishing as Prentice Hall Price-Adaptation Strategies Geographical Pricing Discounts/Allowances Differentiated Pricing Promotional Pricing

26 Copyright © 2009 Pearson Education, Inc. Publishing as Prentice Hall Price-Adaptation Strategies Countertrade Barter Compensation deal Buyback arrangement Offset Discounts/ Allowances Cash discount Quantity discount Functional discount Seasonal discount Allowance

27 Copyright © 2009 Pearson Education, Inc. Publishing as Prentice Hall Promotional Pricing Tactics Loss-leader pricing Special-event pricing Cash rebates Low-interest financing Longer payment terms Warranties and service contracts Psychological discounting

28 Copyright © 2009 Pearson Education, Inc. Publishing as Prentice Hall Differentiated Pricing Customer-segment pricing Product-form pricing Image pricing Channel pricing Location pricing Time pricing Yield pricing

29 Copyright © 2009 Pearson Education, Inc. Publishing as Prentice Hall Table 14.6 Profits Before and After a Price Increase

30 Copyright © 2009 Pearson Education, Inc. Publishing as Prentice Hall Increasing Prices Delayed quotation pricing Escalator clauses Unbundling Reduction of discounts

31 Copyright © 2009 Pearson Education, Inc. Publishing as Prentice Hall 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

32 Copyright © 2009 Pearson Education, Inc. Publishing as Prentice Hall Marketing Debate Is the right price a fair price? Take a position: 1.Prices should reflect the value that consumers are willing to pay. or 2. Prices should primarily just reflect the cost involved in making a product.

33 Copyright © 2009 Pearson Education, Inc. Publishing as Prentice Hall Marketing Discussion Think of all the pricing methods described in the chapter. As a consumer, which pricing method do you personally prefer to deal with? Why?


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