Marketing: An Introduction Pricing Products: Pricing Considerations and Strategies Chapter Ten Lecture Slides –Express Version Course Professor Date

Marketing: An Introduction ©Copyright 2004, Pearson Education Canada Inc Looking Ahead After studying this chapter you should be able to: Identify and explain the external and internal factors affecting a firm’s pricing decisions Contrast the three general approaches to setting prices Describe the major strategies for pricing imitative and new products Explain how companies find a set of prices that maximizes the profits from the total product mix Discuss how companies adjust their prices to take into account different types of customers and situations Discuss key issues related to initiating and responding to price changes

Marketing: An Introduction ©Copyright 2004, Pearson Education Canada Inc Pricing Best Practices Develop a 1 percent pricing mentality Consistently deliver more value Price strategically, not opportunistically Know your competition Make pricing a process

Marketing: An Introduction ©Copyright 2004, Pearson Education Canada Inc Factors Affecting Pricing Decisions External Factors Nature of the market Demand Competitors’ costs, prices, and offers The economy Reseller needs Government actions Social concerns Internal Factors Marketing objectives Marketing mix strategy Costs Organizational considerations Target market Positioning objectives

Marketing: An Introduction ©Copyright 2004, Pearson Education Canada Inc Price Elasticity of Demand

Marketing: An Introduction ©Copyright 2004, Pearson Education Canada Inc General Pricing Approaches Cost-based approach: –Cost-plus pricing –Break-even analysis –Target profit pricing Value-based approach: –Consumer perceptions of value Competition-based approach: –What competitors are charging

Marketing: An Introduction ©Copyright 2004, Pearson Education Canada Inc General Pricing Approaches Figure 10-4

Marketing: An Introduction ©Copyright 2004, Pearson Education Canada Inc General Pricing Approaches Figure 10-5 Product CostPriceValueCustomers Cost-based Pricing Customers ValuePriceCostProduct Value-based Pricing

Marketing: An Introduction ©Copyright 2004, Pearson Education Canada Inc Pricing Imitative and New Products Skimming policy –Set price high to “skim” the maximum amount of revenue from various segments of the market –Used for new technology products –Helps recover R&D costs quickly –May encourage competitors to enter market Penetration pricing –Setting a low initial pricing to penetrate the market deeply and win a large market share. –Used when setting the standard is important –Used when the product is easily copied –May discourage competitors to enter market

Marketing: An Introduction ©Copyright 2004, Pearson Education Canada Inc Product Mix Pricing Strategies Product line pricing: –Using price steps based on cost differences, customer evaluations of different features, and competitors’ prices Other product mix pricing situations: –Optional products –Captive products –By-products –Product bundles

Marketing: An Introduction ©Copyright 2004, Pearson Education Canada Inc Price-Adjustment Strategies Discount and allowance pricing Segmented pricing Psychological pricing Promotional pricing –Versus every day low price (EDLP) strategy used successfully by Wal-Mart Geographical pricing –F.O.B. origin pricing –Uniform delivered price –Zone pricing International pricing

Marketing: An Introduction ©Copyright 2004, Pearson Education Canada Inc Has competitor cut price? Will lower price negatively affect our market share & profits? Can/should effective action be taken? Hold current price; continue to monitor competitor’s price Reduce price Raise perceived quality Improve quality & increase price Launch low-price “fighting brand” Yes No Responding to Competitor’s Price Changes Yes Figure 10-6

Marketing: An Introduction ©Copyright 2004, Pearson Education Canada Inc Public Policy Issues in Pricing Between manufacturers –Price-fixing –Predatory pricing Between manufacturers and retailers –Retail price maintenance –Discriminatory pricing Between retailers and consumers –Deceptive pricing Between manufacturers and consumers –Deceptive pricing

Marketing: An Introduction ©Copyright 2004, Pearson Education Canada Inc Looking Back Internal and external factors influencing pricing Three general approaches to pricing Pricing new products Adjusting pricing Responding to price changes