1. Dr. Saleh Alqahtani Chapter 16 Developing Price Strategies and Programs by

2. Dr. Saleh Alqahtani Sell value, not price. Sell value, not price. Kotler on Marketing

3. Dr. Saleh Alqahtani Chapter Objectives In this chapter, we focus on three questions: In this chapter, we focus on three questions: How should a price be set on a product or service for the first time? How should a price be set on a product or service for the first time? How should the price be adapted to meet varying circumstances and opportunities? How should the price be adapted to meet varying circumstances and opportunities? When should the company initiate a price change, and how should it respond to a competitors price change? When should the company initiate a price change, and how should it respond to a competitors price change?

4. Dr. Saleh Alqahtani Price High Medium Low High Low Product Quality Med Premium Value Premium Value Medium Value Economy Overcharging Rip-Off False Economy High Value Super Value Good-Value Price - Quality Strategies

5. Dr. Saleh Alqahtani Figure 16.2: Price Should Align with Value

6. Dr. Saleh Alqahtani Setting Pricing Policy 1.Selecting the pricing objective 2. Determining demand 3. Estimating costs 4.Analyzing competitors costs, prices, and offers 5.Selecting a pricing method 6. Selecting final price

7. Dr. Saleh Alqahtani Adapting the Price Geographical Pricing (Cash, Countertrade, Barter) Geographical Pricing (Cash, Countertrade, Barter) Countertrade Countertrade Barter Barter Compensation deal Compensation deal Buyback arrangement Buyback arrangement Offset Offset Price Discounts and Allowances Price Discounts and Allowances

8. Dr. Saleh Alqahtani Table 16.2: Price Discounts and Allowances Cash Discount: A price reduction to buyers who pay bills promptly. A typical example is 2/10, net 30, which means that payment is due within 30 days and that the buyer can deduct 2 percent by paying the bill within 10 days. Quantity Discount: A price reduction to those who buy large volumes. A typical example is $10 per unit for less than 100 units; $9 per unit for 100 or more units. Quantity discounts must be offered equally to all customers and must not exceed the cost savings to the seller. They can be offered on each order placed or on the number of units ordered over a given period. See text for complete table

9. Dr. Saleh Alqahtani Types of Costs Total Costs Sum of the Fixed and Variable Costs for a Given Level of Production Total Costs Sum of the Fixed and Variable Costs for a Given Level of Production Fixed Costs (Overhead) Costs that dont vary with sales or production levels. Executive Salaries Rent Fixed Costs (Overhead) Costs that dont vary with sales or production levels. Executive Salaries Rent Variable Costs Costs that do vary directly with the level of production. Raw materials Variable Costs Costs that do vary directly with the level of production. Raw materials

10. Dr. Saleh Alqahtani The Three Cs Model for Price Setting Costs Competitors prices and prices of substitutes Customers assessment of unique product features Low Price No possible profit at this price High Price No possible demand at this price

11. Dr. Saleh Alqahtani Pricing Methods Markup Pricing Markup Pricing Target Return Pricing Target Return Pricing Perceived Value Pricing Perceived Value Pricing Value Pricing Value Pricing Going-Rate Pricing Going-Rate Pricing Sealed-Bid Pricing Sealed-Bid Pricing

12. Dr. Saleh Alqahtani Some important pricing definitions Utility: The attribute that makes it capable of want satisfaction Utility: The attribute that makes it capable of want satisfaction Value: The worth in terms of other products Value: The worth in terms of other products Price: The monetary medium of exchange. Price: The monetary medium of exchange. Value Example: Caterpillar Tractor is $100,000 vs. Market $90,000 $90,000 if equal 7,000 extra durable 6,000 reliability 5,000 service 2,000 warranty ! $110,000 in benefits - $10,000 discount!

13. Dr. Saleh Alqahtani Promotional Pricing Loss-leader pricing Loss-leader pricing Special-event pricing Special-event pricing Cash rebates Cash rebates Low-interest financing Low-interest financing Longer payment terms Longer payment terms Warranties & service contracts Warranties & service contracts Psychological discounting Psychological discounting

14. Dr. Saleh Alqahtani Psychological Pricing Most Attractive? Most Attractive? Better Value? Better Value? Psychological reason to price this way? Psychological reason to price this way? A 32 oz. $2.19 B 26 oz. $1.99 Assume Equal Quality

15. Dr. Saleh Alqahtani Discriminatory Pricing TimeProduct-form Customer Segment Location

16. Dr. Saleh Alqahtani Price-Reaction Program for Meeting a Competitors Price Cut Has competitor cut his price? No Hold our price at present level; continue to watch competitors price Is the price likely to significantly hurt our sales? Yes Is it likely to be a permanent price cut? Yes By more than 4% Drop price to competitors price By 2-4% Drop price by half of the competitors price cut How much has his price been cut? Yes NoNo By less than 2% Include a cents-off coupon for the next purchase

17. Dr. Saleh Alqahtani Adapting the Price Promotional Pricing Promotional Pricing Loss-leader pricing Loss-leader pricing Special-event pricing Special-event pricing Cash rebates Cash rebates Low-interest financing Low-interest financing Longer payment terms Longer payment terms Warranties and service contracts Warranties and service contracts Psychological discounting Psychological discounting

18. Dr. Saleh Alqahtani Adapting the Price Discriminatory Pricing Discriminatory Pricing Customer segment pricing Customer segment pricing Product-form pricing Product-form pricing Image pricing Image pricing Channel pricing Channel pricing Location pricing Location pricing Time pricing Time pricing Yield pricing Yield pricing

19. Dr. Saleh Alqahtani Adapting the Price Product-mix pricing Product-mix pricing Product-Line Pricing Product-Line Pricing Optional-Feature Pricing Optional-Feature Pricing Captive-Product Pricing Captive-Product Pricing Captive products Captive products Two-Part Pricing Two-Part Pricing By-Product Pricing By-Product Pricing Product-Bundling Pricing Product-Bundling Pricing Pure bundling Pure bundling Mixed bundling Mixed bundling

20. Dr. Saleh Alqahtani Initiating and Responding to Price Changes Initiating Price Cuts Initiating Price Cuts Drive to dominate the market through lower costs Drive to dominate the market through lower costs Low quality trap Low quality trap Fragile-market-share trap Fragile-market-share trap Shallow-pockets trap Shallow-pockets trap