2Pricing Is a key factor in producing revenue for the firm Is the easiest of all marketing variables to changeIs an important consideration in competitive intelligenceIs considered to be the only means of differentiation in highly commoditized marketsIs among the most complex decisions in the marketing plan
3Discussion QuestionOne of the key themes of today’s economy is the challenge of marketing goods and services in mature markets that are plagued by commoditization. In what ways is pricing strategy related to commoditization? How can a firm offer good value in a mature market where price is the only visible means of differentiation? Are most firms too concerned about their costs to really deliver value in other ways? Explain.
4The Role of Pricing in Marketing Strategy (1 of 2) The Seller’s Perspective on PricingFour key issues:CostsDemandCustomer valueCompetitors’ pricesThe Buyer’s Perspective on PricingTwo key issues:Perceived valuePrice sensitivity
5The Role of Pricing in Marketing Strategy (2 of 2) A Shift in the Balance of PowerA buyer’s market occurs when:Large number of sellers in the marketMany substitutes for the productEconomy is weakA seller’s market occurs when:Products are in short supplyProducts are in high demandEconomy is strong
6The Relationship Between Price and Revenue Myth #1 – When business is good, a price cut will increase market share.Myth #2 – When business is bad, a price cut will stimulate sales.Price cutting is generally not in the best interests of the firm unless sales volume will increase.A better strategy is to build value into the product offering at the same (or even a higher) price.
7Key Issues in Pricing Strategy Pricing ObjectivesSupply and DemandThe Firm’s Cost StructureCompetition and Industry StructurePure CompetitionMonopolistic CompetitionOligopolyMonopolyStage of the Product Life Cycle
9Pricing Strategy Over the Product Life Cycle Exhibit 8.2
10Pricing Strategy in Services Is critical because price may be the only cue to qualityBecomes more important and difficult when:Service quality is hard to detect prior to purchaseCosts are difficult to determineCustomers are unfamiliar with the processBrand names are not well establishedCustomers can perform the service themselvesService has poorly defined units of consumptionAdvertising within the service category is limitedThe total price of the service is difficult to state beforehand
11Discussion QuestionPricing strategy associated with services is typically more complex than the pricing of tangible goods. As a consumer, what pricing issues do you consider when purchasing services? How difficult is it to compare prices among competing services, or to determine the complete price of the service before purchase? What could service providers do to solve these issues?
12Price Elasticity and Yield Management Allows simultaneous control of capacity and demandControl capacity by limiting available capacity at certain price pointsControl demand through price changes and overbooking capacity
13Yield Management for a Hypothetical Hotel Exhibit 8.3
15Price Elasticity of Demand (2 of 2) Situations that increase price sensitivity:Availability of product substitutesHigher total expenditureNoticeable differencesEasy price comparisonSituations that decrease price sensitivity:Real or perceived necessitiesLack of product substitutesComplementary productsProduct differentiationPerceived product benefitsSituational influences
16Discussion QuestionPrice elasticity often varies for the same product based on the situation. What situational factors might affect the price elasticity of these products:sporting event or concert ticketsstaple goods such as milk, eggs, or breadan electric razoreye surgery to correct vision
17Pricing Strategies (1 of 2) Base Pricing StrategiesMarket Introduction Pricing (skimming and penetration)Prestige PricingValue-Based Pricing (EDLP)Competitive MatchingNon-Price StrategiesAdjusting Prices in Consumer MarketsPromotional DiscountingReference PricingOdd-Even PricingPrice Bundling
18Marketing Strategy in Action Chrysler’s initial price skimming strategy for the Pacifica was not successful in attracting customers. Why would customers balk at a $40,000 price tag for the Pacifica? What are the issues affecting price sensitivity in this situation?
19Pricing Strategies (2 of 2) Adjusting Prices in Business MarketsTrade discountsDiscounts and allowancesGeographic pricingTransfer pricingBarter and countertradePrice discrimination
20Fixed vs. Dynamic Pricing Pricing levels in a negotiated pricing situation:Opening positionAspiration priceLimitGuidelines for making concessions:Avoid being the first side to make a concessionStart with modest concessions and make them smaller as you proceedAvoid making concessions early in the negotiationDo not give up anything without something in return
22Legal and Ethical Issues in Pricing Price DiscriminationPrice FixingPredatory PricingDeceptive Pricing
23Selling at a LossSony is expected to lose money on each PlayStation 3 console due to the cost of the cell processor and the Blu-ray DVD drive. Sony plans to make up for the loss in games and accessories. Is this a sound pricing strategy? How can Sony minimize the loss on each console?Beyond the Pages 8.2