Chapter 26 Pricing Strategies 2 SECTION 26.2 What You'll Learn Setting Prices The various pricing techniques The steps in setting prices
Chapter 26 Pricing Strategies 3 SECTION 26.2 Setting Prices Why It's Important Now that you have studied pricing concepts and policies, it is time to look at the special pricing techniques that help companies achieve their business goals. Then you will put all of that information into a single process: the steps for determining price.
Chapter 26 Pricing Strategies 5 SECTION 26.2 Setting Prices Two common pricing techniques marketers use are: psychological pricing discount pricing Pricing Techniques
Chapter 26 Pricing Strategies 6 SECTION 26.2 Setting Prices Psychological Pricing Psychological pricing refers to techniques that create an illusion for customers or that make shopping easier for them. Common psychological pricing techniques are: odd-even pricing prestige pricing multiple-unit pricing bundle pricing promotional pricing everyday low prices (EDLP) price lining Slide 1 of 5
Chapter 26 Pricing Strategies 7 SECTION 26.2 Setting Prices Psychological Pricing Odd-even pricing involves setting prices that end in either odd or even numbers. Odd numbers convey a bargain image; even numbers convey quality. Prestige pricing involves setting higher-than-average prices to suggest status and prestige. Slide 2 of 5
Chapter 26 Pricing Strategies 8 SECTION 26.2 Setting Prices Psychological Pricing Multiple-unit pricing involves pricing items in multiples to suggest a bargain and increase sales volume. Bundle pricing involves including several complementary products in a package and pricing them lower as a group than if they were bought separately. Slide 3 of 5
Chapter 26 Pricing Strategies 9 SECTION 26.2 Setting Prices Promotional pricing is generally used in conjunction with sales promotions when prices are lower than average. Loss-leader pricing provides items at cost to attract customers. In special-event pricing, prices are reduced for a short period of time, such as a holiday sale. Psychological Pricing Slide 4 of 5
Chapter 26 Pricing Strategies 10 SECTION 26.2 Setting Prices Everyday low prices (EDLP) are low prices that are set on a consistent basis with no intention of raising them or offering discounts in the future. Price lining involves offering all merchandise in a given category at certain prices, such as $25, $35, and $50. Psychological Pricing Slide 5 of 5
Chapter 26 Pricing Strategies 11 SECTION 26.2 Setting Prices Discount pricing involves the seller's offering reductions from the usual price. They include: cash quantity trade seasonal discounts promotional discounts and allowances Discount Pricing Slide 1 of 4
Chapter 26 Pricing Strategies 12 SECTION 26.2 Setting Prices Cash discounts are offered to buyers to encourage them to pay their bills quickly. Quantity discounts are offered to buyers for placing large orders. Noncumulative quantity discounts are offered on one order. Cumulative quantity discounts are offered on all orders over a specified period of time. Discount Pricing Slide 2 of 4
Chapter 26 Pricing Strategies 13 SECTION 26.2 Setting Prices Trade discounts are the way manufacturers quote prices to wholesalers and retailers. Manufacturers establish suggested retail prices for their items, then grant members of the channel of distribution discounts from the list prices for performing their respective functions. Discount Pricing Slide 3 of 4
Chapter 26 Pricing Strategies 14 SECTION 26.2 Setting Prices Seasonal discounts are offered to buyers willing to buy at a time outside the customary buying season. Promotional discounts are offered to wholesalers and retailers willing to advertise or promote a manufacturer's products. Allowances are granted to customers for selling back an old model. Discount Pricing Slide 4 of 4
Chapter 26 Pricing Strategies 15 SECTION 26.2 Setting Prices These are the six steps in determining a price for an item: 1. Determine pricing objectives. 2. Study costs. 3. Estimate demand. 4. Study competition. 5. Decide on a pricing strategy. 6. Set price. Steps in Setting Prices
Chapter 26 Pricing Strategies 16 SECTION 26.2 Setting Prices What is your purpose in setting a price? Do you want to increase sales volume or sales revenue? Establish a prestigious image? Increase your market share and market position? Answering these questions will help you keep your prices in line with other marketing decisions. Step 1Determining Pricing Objectives
Chapter 26 Pricing Strategies 17 SECTION 26.2 Setting Prices Since the main reason for being in business is to make a profit, give careful consideration to the costs involved in making or acquiring the goods or services you will offer for sale. Determine whether and how you can reduce costs without affecting the quality or image of your product. Step 2Study Costs
Chapter 26 Pricing Strategies 18 SECTION 26.2 Setting Prices Employ market research techniques to estimate consumer demand. The key to pricing goods and services is to set prices at the level consumers expect to pay. In many cases, those prices are directly related to demand. Step 3Estimate Demand
Chapter 26 Pricing Strategies 19 SECTION 26.2 Setting Prices Investigate your competitors to see what prices they are charging for similar goods and services. Study the market leader. What is the range of prices from the ceiling price to the price floor? Will you price your goods lower than, equal to, or higher than your competitors'? Step 4Study Competition
Chapter 26 Pricing Strategies 20 SECTION 26.2 Setting Prices You may decide to price your product higher than the competition's because you believe your product is superior. You may decide to set a lower price with the understanding that you will raise it once the product is accepted in the marketplace. Step 5Decide on a Pricing Strategy
Chapter 26 Pricing Strategies 21 SECTION 26.2 Setting Prices After you have evaluated all the foregoing factors, apply the pricing techniques that match your strategy and set an initial price. Be prepared to monitor that price and evaluate its effectiveness as conditions in the market change. Step 6Set Price
Chapter 26 Pricing Strategies 22 26.2 A SSESSMENT Reviewing Key Terms and Concepts 1. How are odd-even, prestige, multiple-unit, and bundle pricing related? Different? 2. What is the main difference between promotional pricing and everyday low prices? 3. What is the key factor in deciding on price lines? 4. Name five types of discount pricing techniques. 5. List the six steps in setting prices.
Chapter 26 Pricing Strategies 23 26.2 A SSESSMENT Thinking Critically Johnson & Johnson promoted its baby shampoo to adult male athletes by touting the product's gentleness, even when used every day. At what stage in the shampoo's life cycle do you think this promotion took place? What do you think Johnson & Johnson was trying to accomplish by promoting its baby shampoo to adult males?
Chapter 26 Pricing Strategies 24 26.2 Graphic Organizer Types of Psychological Pricing Everyday Low Prices (EDLP) Everyday Low Prices (EDLP) Promotional Pricing Promotional Pricing Bundle Pricing Bundle Pricing Multiple- Unit Pricing Multiple- Unit Pricing Odd- Even Pricing Odd- Even Pricing Price Lining Price Lining Prestige Pricing PsychologicalPricingPsychologicalPricing
Chapter 26 Pricing Strategies 25 Marketing Essentials End of Section 26.2