© 2013 Cengage Learning. All rights reserved. 1-1

1-2 13: Pricing Management Part 5: Pricing Decisions © 2013 Cengage Learning. All rights reserved.

1-3  Describe the six major stages of the process used to establish prices  Explore issues related to developing pricing objectives  Understand the importance of identifying the target market’s evaluation of price  Examine how marketers analyze competitor’s prices  Describe the bases used for setting pricings  Explain the different types of pricing strategies

© 2013 Cengage Learning. All rights reserved. 1-4

1-5  Pricing objectives: Goals that describe what a firm wants to achieve through pricing  Step one of the price-setting process  Should be consistent with organizational and marketing objectives  Can be short- or long-term and marketers can employ multiple pricing objectives © 2013 Cengage Learning. All rights reserved.

1-6

© 2013 Cengage Learning. All rights reserved. 1-7  How do you feel Apple’s pricing strategy for products like its MacBook, iPod, and iPad reinforces its quality image?Apple’s

1-8  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 © 2013 Cengage Learning. All rights reserved.

1-9  How might a customer use this advertisement for Dyson vacuum cleaners to evaluate the value of Dyson’s products? © Dyson

© 2013 Cengage Learning. All rights reserved. 1-10

© 2013 Cengage Learning. All rights reserved  How does Nestlé’s Toll House brand create value for customers?Nestlé’s Toll House  Pre-made cookie dough logs  Cookie dough tubs  Fancy pre-shaped cookie dough  Baking supplies

1-12  The third step in the price-setting process  Marketers should use competitors’ prices to help them establish their own prices  Competitors’ prices may be a closely guarded secret  Pricing above competition creates an exclusive image  Pricing below competition can increase market share © 2013 Cengage Learning. All rights reserved.

1-13  The fourth step in the price-setting process  The three major dimensions on which prices can be based are Cost Demand Competition  An organization usually considers multiple dimensions  Type of product  Market structure of industry  Brand’s market share position  Customer characteristics © 2013 Cengage Learning. All rights reserved.

1-14  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 amount of percentage 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 © 2013 Cengage Learning. All rights reserved.

1-15  Markup can be stated as a percentage of the cost or a percentage of the selling price © 2013 Cengage Learning. All rights reserved. Markup as % of Cost = Markup Cost = = 33.3% Markup as % of Selling Price = Markup Selling Price = = 25.0%

1-16  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 estimate how much customers will demand at different prices © 2013 Cengage Learning. All rights reserved.

1-17  Pricing influenced by competitors’ prices; costs are a secondary consideration  Importance of this method increases when  Competing products are homogeneous  Organization is serving markets in which pricing is a key consideration  May necessitate frequent price adjustments © 2013 Cengage Learning. All rights reserved.

1-18  How do you think competition within the market for smartphones has influenced pricing?  Apple iPhone  Motorola Droid  RIM Blackberry  T-Mobile My Touch  Samsung Galaxy

1-19  A pricing strategy is an approach or course of action designed to achieve pricing and marketing objectives  The fifth step in the price-setting process © 2013 Cengage Learning. All rights reserved.

1-20

1-21  Charging different prices to different buyers for the same quality and quantity of product  Negotiated pricing: Final price established through buyer/seller bargaining  Secondary-market pricing: One price for primary target market and a different price for another market  Periodic discounting: Temporary price reductions on a patterned systematic basis  Random discounting: Unsystematic temporary price reductions © 2013 Cengage Learning. All rights reserved.

1-22  Setting the base 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 competing brands to penetrate a market and gain market share quickly © 2013 Cengage Learning. All rights reserved.

1-23  Establishing and adjusting prices of multiple products within a product line The goal is to maximize profits for an entire product line  Captive pricing: Basic product in a product line is priced low while associated required items are priced higher  Premium pricing: Giving the highest-quality products in a line the highest prices  Bait pricing: Pricing one item in a line low, with the intention of selling higher-priced items  Price lining: Setting a limited number of prices for selected groups/lines of merchandise © 2013 Cengage Learning. All rights reserved.

1-24  Printer ink is a popular example of captive pricing  How does captive pricing work?  Why is this a popular method for pricing printers and ink? © 2011 Dell Inc. All rights reserved.

© 2013 Cengage Learning. All rights reserved. 1-25

1-26  Attempts to influence a customer’s perception of price to make the product’s price more attractive  Reference pricing: Displaying a moderately priced item next to a more expensive model to make it seem lower in price  Bundle pricing: Packaging complementary products to be sold at a single price  Multiple-unit pricing: Packaging together two or more identical products to be sold at a single price © 2013 Cengage Learning. All rights reserved.

1-27  Verizon bundles its various services to offer low prices to customers.  Can you think of other goods or services that are frequently bundled? Courtesy of Verizon

1-28  Everyday Low Prices (EDLP): Setting a low price on products on a consistent basis  Odd-even pricing: Ending the price with certain numbers that influence buyers’ perceptions of the price or product  Customary pricing: Pricing certain goods primarily on the basis of tradition  Prestige pricing: Setting pricings at an artificially high level to convey prestige or a quality image © 2013 Cengage Learning. All rights reserved.

1-29  Think of examples you have encountered of the different psychological pricing techniques  Reference pricing  Bundle pricing  Multiple-unit pricing  Everyday Low Prices  Did the technique work on you? Did you purchase the product?

© 2013 Cengage Learning. All rights reserved. 1-30

1-31  Used by people with great skill or expertise in a field or activity  Professional prices do not relate to the time or effort expended to perform the service  Usually is a standard fee  Professionals have an ethical responsibility not to overcharge customers © 2013 Cengage Learning. All rights reserved.

1-32  Price is often coordinated with promotion  Price leader: Products priced below the usual markup, near cost, or even below cost Management hopes sales of regularly-priced items will offset the reduced revenues from the price leaders  Special-event pricing: Advertised sales or price- cutting used to increase sales volume that 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 priced item © 2013 Cengage Learning. All rights reserved.

1-33  The final step in the price-setting process  Pricing strategy  Yields a certain price, which may need refining  Helps in setting final price  In the absence of government controls, pricing remains flexible and is a convenient way to adjust the marketing mix © 2013 Cengage Learning. All rights reserved.

1-34 Pricing objectivesPremium pricing Cost-based pricingBait pricing Cost-plus pricingPrice lining Markup pricingPsychological pricing Demand-based pricingReference pricing Competition-based pricingBundle pricing Differential pricingMultiple-unit pricing

© 2013 Cengage Learning. All rights reserved Negotiated pricingEveryday low prices (EDLP) Secondary-market pricingOdd-even pricing Periodic discountingCustomary pricing Random discountingPrestige pricing Price skimmingProfessional pricing Penetration pricingPrice leaders Product-line pricingSpecial-event pricing Captive pricingComparison discounting