1. © iStockphoto.com/hh5800 Part 7 Part 7 Pricing Decisions MARKETIN G 17e Hult Pride Ferrell © 2014 Cengage Learning. All Rights Reserved. This edition is intended for use outside of the U.S. only, with content that may be different from the U.S. Edition. May not be scanned, copied, duplicated, or posted to a publicly accessible website, in whole or in part.

2. © iStockphoto.com/hh5800 21-2 19: Strategic Pricing Management 21: Pricing Decisions © 2014 Cengage Learning. All Rights Reserved. This edition is intended for use outside of the U.S. only, with content that may be different from the U.S. Edition. May not be scanned, copied, duplicated, or posted to a publicly accessible website, in whole or in part.

3. © iStockphoto.com/hh5800 Objectives  To describe the six major stages of the process used to establish prices  To explore issues related to developing pricing objectives  To understand the importance of identifying the target market’s evaluation of price  To examine how marketers analyze competitors’ prices  To describe the bases used for setting prices  To explain the different types of pricing strategies 21-3 © 2014 Cengage Learning. All Rights Reserved. This edition is intended for use outside of the U.S. only, with content that may be different from the U.S. Edition. May not be scanned, copied, duplicated, or posted to a publicly accessible website, in whole or in part.

4. © iStockphoto.com/hh5800 Components of Strategic Marketing 21-4 © 2014 Cengage Learning. All Rights Reserved. This edition is intended for use outside of the U.S. only, with content that may be different from the U.S. Edition. May not be scanned, copied, duplicated, or posted to a publicly accessible website, in whole or in part.

5. © iStockphoto.com/hh5800 Development of Pricing Objectives  Step one of the price-setting process Pricing Objectives  Goals that describe what a firm wants to achieve through pricing  Should be consistent with organizational and marketing objectives  Can be short- or long-term and marketers can employ multiple pricing objectives 21-5 © 2014 Cengage Learning. All Rights Reserved. This edition is intended for use outside of the U.S. only, with content that may be different from the U.S. Edition. May not be scanned, copied, duplicated, or posted to a publicly accessible website, in whole or in part.

6. © iStockphoto.com/hh5800 Pricing Objectives and Typical Actions Taken to Achieve Them 21-6 © 2014 Cengage Learning. All Rights Reserved. This edition is intended for use outside of the U.S. only, with content that may be different from the U.S. Edition. May not be scanned, copied, duplicated, or posted to a publicly accessible website, in whole or in part.

7. © iStockphoto.com/hh5800 Discussion Point Pricing Objective ? What is the pricing objective for the retailer in this advertisement? 21-7 © 2014 Cengage Learning. All Rights Reserved. This edition is intended for use outside of the U.S. only, with content that may be different from the U.S. Edition. May not be scanned, copied, duplicated, or posted to a publicly accessible website, in whole or in part.

8. © iStockphoto.com/hh5800 Assessment of the Target Market’s Evaluation of Price  The second step in the price-setting process  Importance of price depends on:  Type of product  Type of target market  Purchase situation  Value combines a product’s price and quality attributes  Customers use value to differentiate between competing brands 21-8 © 2014 Cengage Learning. All Rights Reserved. This edition is intended for use outside of the U.S. only, with content that may be different from the U.S. Edition. May not be scanned, copied, duplicated, or posted to a publicly accessible website, in whole or in part.

9. © iStockphoto.com/hh5800 Discussion Point 17-9 © 2014 Cengage Learning. All Rights Reserved. This edition is intended for use outside of the U.S. only, with content that may be different from the U.S. Edition. May not be scanned, copied, duplicated, or posted to a publicly accessible website, in whole or in part.

10. © iStockphoto.com/hh5800 Examples of Perceptions of Product Value 17-10 © 2014 Cengage Learning. All Rights Reserved. This edition is intended for use outside of the U.S. only, with content that may be different from the U.S. Edition. May not be scanned, copied, duplicated, or posted to a publicly accessible website, in whole or in part.

11. © iStockphoto.com/hh5800 Discussion Point ? How does Nestlé’s Toll House brand create value for its customers?Nestlé’s Toll House  Pre-made cookie dough logs  Cookie dough tubs  Fancy pre-shaped cookie dough  Baking supplies 21-11 © 2014 Cengage Learning. All Rights Reserved. This edition is intended for use outside of the U.S. only, with content that may be different from the U.S. Edition. May not be scanned, copied, duplicated, or posted to a publicly accessible website, in whole or in part.

12. © iStockphoto.com/hh5800 Evaluation of Competitors’ Prices  The third step in the price-setting process  Marketers should use competitors’ prices to help them establish their own prices  Competitors’ prices may be closely guarded  Pricing above competition creates an exclusive image  Pricing below competition can increase market share 21-12 © 2014 Cengage Learning. All Rights Reserved. This edition is intended for use outside of the U.S. only, with content that may be different from the U.S. Edition. May not be scanned, copied, duplicated, or posted to a publicly accessible website, in whole or in part.

13. © iStockphoto.com/hh5800 Selection of a Basis for Pricing  The fourth step in the price-setting process  The three major dimensions on which prices can be based are:  Cost  Demand  Competition 21-13 © 2014 Cengage Learning. All Rights Reserved. This edition is intended for use outside of the U.S. only, with content that may be different from the U.S. Edition. May not be scanned, copied, duplicated, or posted to a publicly accessible website, in whole or in part.

14. © iStockphoto.com/hh5800 Selection of a Basis for Pricing  An organization usually considers multiple dimensions  Type of product  Market structure of the industry  Brand’s market share position relative to competing brands  Customer characteristics 21-14 © 2014 Cengage Learning. All Rights Reserved. This edition is intended for use outside of the U.S. only, with content that may be different from the U.S. Edition. May not be scanned, copied, duplicated, or posted to a publicly accessible website, in whole or in part.

15. © iStockphoto.com/hh5800 Cost-Based Pricing  Adding a dollar amount or percentage to the cost of the product Cost-Plus Pricing  Determine the seller’s cost and add a specified dollar to it  Is used when production costs are difficult to predict Markup Pricing  Adding a predetermined percentage of the cost to the price of the product 21-15 © 2014 Cengage Learning. All Rights Reserved. This edition is intended for use outside of the U.S. only, with content that may be different from the U.S. Edition. May not be scanned, copied, duplicated, or posted to a publicly accessible website, in whole or in part.

16. © iStockphoto.com/hh5800 Markup Pricing  Markup can be stated as a percentage of cost of making the product or a percentage of selling price 21-16 Markup as % of Cost = Markup Cost = 15 45 = 33.3% Markup as % of Selling Price = Markup Selling Price = 15 60 = 25.0% © 2014 Cengage Learning. All Rights Reserved. This edition is intended for use outside of the U.S. only, with content that may be different from the U.S. Edition. May not be scanned, copied, duplicated, or posted to a publicly accessible website, in whole or in part.

17. © iStockphoto.com/hh5800 Demand-Based Pricing  Customers pay a higher price when demand for the product is strong and a lower price when demand is weak  Marketers must be able to calculate how much customers will buy at different price points 21-17 © 2014 Cengage Learning. All Rights Reserved. This edition is intended for use outside of the U.S. only, with content that may be different from the U.S. Edition. May not be scanned, copied, duplicated, or posted to a publicly accessible website, in whole or in part.

18. © iStockphoto.com/hh5800 Discussion Point Demand-Based Pricing  Car rental companies often engage in demand-based pricing 21-18 ? How does demand- based pricing work? © 2014 Cengage Learning. All Rights Reserved. This edition is intended for use outside of the U.S. only, with content that may be different from the U.S. Edition. May not be scanned, copied, duplicated, or posted to a publicly accessible website, in whole or in part.

19. © iStockphoto.com/hh5800 Non-Price Factors Affecting Demand  Market  Degree of competition  Competitor action/reaction  General economic conditions  Product  Quality  Range  Nature-essential/luxury  Substitutes 21-19 © 2014 Cengage Learning. All Rights Reserved. This edition is intended for use outside of the U.S. only, with content that may be different from the U.S. Edition. May not be scanned, copied, duplicated, or posted to a publicly accessible website, in whole or in part.

20. © iStockphoto.com/hh5800 Non-Price Factors Affecting Demand  Support  Service at point of sale and after  Advertising/promotion  Distribution Methods 21-20 © 2014 Cengage Learning. All Rights Reserved. This edition is intended for use outside of the U.S. only, with content that may be different from the U.S. Edition. May not be scanned, copied, duplicated, or posted to a publicly accessible website, in whole or in part.

21. © iStockphoto.com/hh5800 Competition-Based Pricing  Pricing influenced primarily by competitors’ prices  Importance of this method increases when:  Competing products are homogeneous  Organization is serving markets in which price is a key consideration  May necessitate frequent price adjustments 21-21 © 2014 Cengage Learning. All Rights Reserved. This edition is intended for use outside of the U.S. only, with content that may be different from the U.S. Edition. May not be scanned, copied, duplicated, or posted to a publicly accessible website, in whole or in part.

22. © iStockphoto.com/hh5800 Discussion Point ? How do you think competition within the smartphones market has influenced pricing for phones?  Apple iPhone  Verizon Droid  RIM Droid  T-Mobile My Touch  Samsung Galaxy 21-22 © 2014 Cengage Learning. All Rights Reserved. This edition is intended for use outside of the U.S. only, with content that may be different from the U.S. Edition. May not be scanned, copied, duplicated, or posted to a publicly accessible website, in whole or in part.

23. © iStockphoto.com/hh5800 Selection of a Pricing Strategy  The fifth step in the price-setting process  A pricing strategy is an approach or course of action designed to achieve pricing and marketing objectives 21-23 © 2014 Cengage Learning. All Rights Reserved. This edition is intended for use outside of the U.S. only, with content that may be different from the U.S. Edition. May not be scanned, copied, duplicated, or posted to a publicly accessible website, in whole or in part.

24. © iStockphoto.com/hh5800 Common Pricing Strategies 21-24 © 2014 Cengage Learning. All Rights Reserved. This edition is intended for use outside of the U.S. only, with content that may be different from the U.S. Edition. May not be scanned, copied, duplicated, or posted to a publicly accessible website, in whole or in part.

25. © iStockphoto.com/hh5800 Differential Pricing  Charging different prices to different buyers for the same quality and quantity of product Negotiated Pricing  Establishing a final price through bargaining between seller and customer Secondary-Market Pricing  One price for primary target market and a different price for another market 21-25 © 2014 Cengage Learning. All Rights Reserved. This edition is intended for use outside of the U.S. only, with content that may be different from the U.S. Edition. May not be scanned, copied, duplicated, or posted to a publicly accessible website, in whole or in part.

26. © iStockphoto.com/hh5800 Differential Pricing Periodic Discounting Pricing  Temporary reduction of prices on a patterned or systematic basis Random Discounting Pricing  Temporary reduction of prices on an unsystematic basis 21-26 © 2014 Cengage Learning. All Rights Reserved. This edition is intended for use outside of the U.S. only, with content that may be different from the U.S. Edition. May not be scanned, copied, duplicated, or posted to a publicly accessible website, in whole or in part.

27. © iStockphoto.com/hh5800 New-Product Pricing  Setting the price for new products is one of the most fundamental decisions in the marketing mix Price Skimming  Charging the highest possible price that buyers who most desire the product will pay Penetration Pricing  Setting the price below those of competing brands to penetrate a market and gain a significant market share quickly 21-27 © 2014 Cengage Learning. All Rights Reserved. This edition is intended for use outside of the U.S. only, with content that may be different from the U.S. Edition. May not be scanned, copied, duplicated, or posted to a publicly accessible website, in whole or in part.

28. © iStockphoto.com/hh5800 Product-Line Pricing  Establishing and adjusting prices of multiple products within a product line  The goal is to maximize profits for an entire product line Captive Pricing  Pricing the basic product in a product line low, while pricing related items higher 21-28 © 2014 Cengage Learning. All Rights Reserved. This edition is intended for use outside of the U.S. only, with content that may be different from the U.S. Edition. May not be scanned, copied, duplicated, or posted to a publicly accessible website, in whole or in part.

29. © iStockphoto.com/hh5800 Discussion Point Captive Pricing ? Printer ink is a popular example of captive pricing – why? 21-29 ? How does captive pricing work? © 2014 Cengage Learning. All Rights Reserved. This edition is intended for use outside of the U.S. only, with content that may be different from the U.S. Edition. May not be scanned, copied, duplicated, or posted to a publicly accessible website, in whole or in part.

30. © iStockphoto.com/hh5800 Product-Line Pricing Premium Pricing  Pricing the highest-quality or most versatile products higher than other models in the product line Bait Pricing Pricing an item in a product line low with the intention of selling a higher-priced item in the line Price Lining Setting a limited number of prices for selected groups or lines of merchandise 21-30 © 2014 Cengage Learning. All Rights Reserved. This edition is intended for use outside of the U.S. only, with content that may be different from the U.S. Edition. May not be scanned, copied, duplicated, or posted to a publicly accessible website, in whole or in part.

31. © iStockphoto.com/hh5800 Price Lining 21-31 © 2014 Cengage Learning. All Rights Reserved. This edition is intended for use outside of the U.S. only, with content that may be different from the U.S. Edition. May not be scanned, copied, duplicated, or posted to a publicly accessible website, in whole or in part.

32. © iStockphoto.com/hh5800 Psychological Pricing Techniques Psychological Pricing  Pricing that attempts to influence a customer’s perception of price to make a product’s price more attractive Reference Pricing  Pricing a product at a moderate level and displaying it next to a more expensive model or brand 21-32 © 2014 Cengage Learning. All Rights Reserved. This edition is intended for use outside of the U.S. only, with content that may be different from the U.S. Edition. May not be scanned, copied, duplicated, or posted to a publicly accessible website, in whole or in part.

33. © iStockphoto.com/hh5800 Psychological Pricing Techniques Bundle Pricing  Packaging together two or more complementary products and selling them at a single price Multiple-Unit Pricing  Packaging together two or more identical products and selling them at a single price Everyday Low Prices (EDLP)  Pricing products low on a consistent basis 21-33 © 2014 Cengage Learning. All Rights Reserved. This edition is intended for use outside of the U.S. only, with content that may be different from the U.S. Edition. May not be scanned, copied, duplicated, or posted to a publicly accessible website, in whole or in part.

34. © iStockphoto.com/hh5800 Psychological Pricing Techniques Odd-Even Pricing  Ending the price with certain numbers to influence buyers’ perceptions of the price or product Customary Pricing  Pricing certain goods on the basis of tradition Prestige Pricing  Setting prices at an artificially high level to convey prestige or a quality image 21-34 © 2014 Cengage Learning. All Rights Reserved. This edition is intended for use outside of the U.S. only, with content that may be different from the U.S. Edition. May not be scanned, copied, duplicated, or posted to a publicly accessible website, in whole or in part.

35. © iStockphoto.com/hh5800 Discussion Point ? Think of an example you have encountered of the different psychological pricing techniques Reference Pricing Bundle Pricing Multiple-Unit Pricing Everyday Low Prices (EDLP) ? Did the technique work on you? ? Did you purchase the product? 21-35 © 2014 Cengage Learning. All Rights Reserved. This edition is intended for use outside of the U.S. only, with content that may be different from the U.S. Edition. May not be scanned, copied, duplicated, or posted to a publicly accessible website, in whole or in part.

36. © iStockphoto.com/hh5800 Sample Prestige Product Prices 21-36 © 2014 Cengage Learning. All Rights Reserved. This edition is intended for use outside of the U.S. only, with content that may be different from the U.S. Edition. May not be scanned, copied, duplicated, or posted to a publicly accessible website, in whole or in part.

37. © iStockphoto.com/hh5800 Professional Pricing  Fees set by people with great skill or experience in a particular field  Professional prices do not relate to the time or effort expended  A standard fee  Professionals have an ethical responsibility not to overcharge customers 21-37 © 2014 Cengage Learning. All Rights Reserved. This edition is intended for use outside of the U.S. only, with content that may be different from the U.S. Edition. May not be scanned, copied, duplicated, or posted to a publicly accessible website, in whole or in part.

38. © iStockphoto.com/hh5800 Types of Promotional Pricing  Price is often coordinated with promotion Price Leader  Products priced below the usual markup, near cost, or below cost  Management hopes sales of regularly priced merchandise will offset the reduced revenues from the price leaders 21-38 © 2014 Cengage Learning. All Rights Reserved. This edition is intended for use outside of the U.S. only, with content that may be different from the U.S. Edition. May not be scanned, copied, duplicated, or posted to a publicly accessible website, in whole or in part.

39. © iStockphoto.com/hh5800 Types of Promotional Pricing Special-Event Pricing  Advertised sales or price-cutting is used to increase sales volume and is linked to a holiday, a season, or other event Comparison Discounting  The pricing of a product at a specific level and simultaneously comparing it to a higher price 21-39 © 2014 Cengage Learning. All Rights Reserved. This edition is intended for use outside of the U.S. only, with content that may be different from the U.S. Edition. May not be scanned, copied, duplicated, or posted to a publicly accessible website, in whole or in part.

40. © iStockphoto.com/hh5800 Determination of Price: Pricing Strategy  The final step in the price-setting process  Pricing Strategy:  Yields a certain price, which may need refining  Helps in setting final price  In absence of government controls, pricing remains flexible and a convenient way to adjust the marketing mix 21-40 © 2014 Cengage Learning. All Rights Reserved. This edition is intended for use outside of the U.S. only, with content that may be different from the U.S. Edition. May not be scanned, copied, duplicated, or posted to a publicly accessible website, in whole or in part.