1. Chapter 7 Developing a Pricing Strategy

2. COPYRIGHT © 2002 by Thomson Learning, Inc. All Rights Reserved The Importance of Pricing 2 fundamental ways to grow revenue –raise your price –increase the quantity you sell Price is the easiest of all marketing variables to influence –price changes may be implemented immediately

3. COPYRIGHT © 2002 by Thomson Learning, Inc. All Rights Reserved Sellers Considerations in Pricing Costs Demand Customer impact Competitors’ prices

4. COPYRIGHT © 2002 by Thomson Learning, Inc. All Rights Reserved Sellers Must Consider the Following Costs... Direct –finished goods/components, materials, supplies, sales commissions & transportation Indirect –overhead, such as administrative expenses, utilities, rent & equipment

5. COPYRIGHT © 2002 by Thomson Learning, Inc. All Rights Reserved Additional Pricing Considerations... All costs, including opportunity costs, should be considered It’s difficult to cover cost levels generated by inefficiency Bottom line impacts should be communicated, not just price Must reflect an understanding of competitors’ pricing strategies

6. COPYRIGHT © 2002 by Thomson Learning, Inc. All Rights Reserved Customer Issues in Pricing... Contributes to an overall positive evaluation of the purchase decision Driven by the concept of value Different target markets have different perceptions of value Buyers have increasing power

7. COPYRIGHT © 2002 by Thomson Learning, Inc. All Rights Reserved Price Elasticity Percentage change in the quantity demanded compared to the percentage change in price Elasticity increases when the price of substitute products falls

8. COPYRIGHT © 2002 by Thomson Learning, Inc. All Rights Reserved Price Inelasticity Inelasticity increases when the prices for complementary products fall Inelasticity increases when the total expenditure for the product is small Inelasticity increases when situational influences reduce the choices a consumer has

9. COPYRIGHT © 2002 by Thomson Learning, Inc. All Rights Reserved Major Pricing Strategies... Prestige pricing –high end strategy promoting an image of exclusivity & superior quality Odd/Even pricing –psychological pricing strategy Reference pricing –pricing slightly below the competition Price Bundling –two or more complementary products together for 1 reduced price

10. COPYRIGHT © 2002 by Thomson Learning, Inc. All Rights Reserved Prestige Pricing... Name some companies that successfully use a prestige pricing strategy. How does this 1 marketing variable assist in defining the product’s positioning in consumers minds?

11. COPYRIGHT © 2002 by Thomson Learning, Inc. All Rights Reserved Price Bundling... Give examples of companies that successfully couple their complementary product together. Why are some companies willing to discount their prices to be packaged with another product?

12. COPYRIGHT © 2002 by Thomson Learning, Inc. All Rights Reserved Fixed Versus Negotiated Pricing Internet websites have increased the popularity of price bidding Historically the auto industry has used negotiated pricing Negotiated pricing is common in business marketing Negotiated pricing can be a long and frustrating process

13. COPYRIGHT © 2002 by Thomson Learning, Inc. All Rights Reserved Legal & Ethical Issues in Pricing Price fixing –antitrust issues Deceptive pricing –fraud Superficial discounting Price discrimination