The Marketing Mix Price Strategies

The Importance of Pricing Pricing is one of the most vital decisions made by management Price too high and you lose the sale Price too low and you can’t make money Two fundamental ways to grow revenue raise your price increase the quantity you sell Price is the easiest of all marketing variables to influence but among the most complex decisions to make price changes may be implemented immediately

Conceptual Orientation to Pricing Initial pricing discretion Corporate objectives and regulatory constraints Competitive factors Final pricing discretion (Price ceiling) Demand factors (Value to buyers) (Price floor) Direct variable costs Nagle 1999

Nine Price-Quality Strategies

Setting the Price

Setting the Price Pricing Procedure Survival Maximize current profits Select pricing objective Determine demand Estimate costs Analyze competition Select pricing method Select final price Survival Maximize current profits Maximize market share Penetration strategy Market skimming Skimming strategy Product quality leaders Partial cost recovery

Setting the Price Pricing Procedure Select pricing objective Determine demand Estimate costs Analyze competition Select pricing method Select final price Understand factors that affect price sensitivity Estimate demand curves Understand price elasticity of demand Elasticity Inelasticty

Price Sensitivity Situations That Increase Price Sensitivity Availability of product substitutes Higher total expenditure Noticeable differences Easy price comparison Situations That Decrease Price Sensitivity Real or perceived necessities Lack of product substitutes Complementary products Product differentiation Perceived product benefits Situational influences

Price Elasticity of Demand

Setting the Price Pricing Procedure Select pricing objective Determine demand Estimate costs Analyze competition Select pricing method Select final price Types of costs and levels of production must be considered Accumulated production leads to cost reduction via the experience curve Differentiated marketing offers create different cost levels

Setting the Price Pricing Procedure Select method: Markup pricing Select pricing objective Determine demand Estimate costs Analyze competition Select pricing method Select final price Select method: Markup pricing Target-return pricing Perceived-value pricing Value pricing EDLP, Hi-Lo Going-rate pricing Auction-type pricing Group pricing

Setting the Price Pricing Procedure Select pricing objective Determine demand Estimate costs Analyze competition Select pricing method Select final price Requires consideration of additional factors: Psychological pricing Gain-and-risk-sharing pricing Influence of other marketing mix variables Company pricing policies Impact of price on other parties

Price Discounts and Allowances Promotional Allowances Adapting the Price Price Discounts and Allowances Cash Discounts Functional Discounts Quantity Discounts Seasonal Discounts Trade-in Allowances Promotional Allowances

Promotional Pricing Tactics Adapting the Price Loss-Leader Pricing Special Event Pricing Promotional Pricing Tactics Low Interest Financing Cash Rebates Psychological Discounting Warranties and Service Contracts Longer Payment Terms

Discriminatory Pricing Tactics Customer Segment Pricing Adapting the Price Discriminatory Pricing Tactics Time Pricing Image Pricing Channel Pricing Location Pricing Product-Form Pricing Customer Segment Pricing

Adapting the Price Price discrimination works when: Market segments show different intensities of demand Consumers in lower-price segments can not resell to higher-price segments Competitors can not undersell the firm in higher-price segments Cost of segmenting and policing the market does not exceed extra revenue

Adapting the Price Product-Mix Pricing Tactics Two-Part Pricing By-Product Pricing Product-Line Pricing Product-Bundle Pricing Captive-Product Pricing Optional-Feature Pricing

Legal and Ethical Issues in Pricing Price Discrimination Price Fixing Predatory Pricing Deceptive Pricing