chapter 12 - developing pricing strategies and programs
TRANSCRIPT
12Developing Pricing Strategies
and Programs
Chapter Questions
How do consumers process and evaluate prices?How should a company set prices initially for its offerings?How should a company adapt prices to meet varying circumstances and opportunities?How should a company initiate a price change and respond to a competitor’s price change?
12-2
Various Forms of a Price
RentTuitionFeeFareInterestTollPremium
HonorariumSpecial assessmentSalaryCommissionWageTax Bribe
12-3
The Internet Changes the Pricing Environment –
By Providing Information
12-4
12-5
Common Pricing Mistakes
Determine costs and take traditional industry marginsFailure to revise price to capitalize on market changesSetting price independently of the rest of the marketing mixFailure to vary price by product item, market segment, distribution channels, and purchase occasion
12-6
Consumer Psychology and Pricing
Reference prices Price-quality inferencesPrice endings and cues
Possible Consumer Reference Prices
“Fair price”Typical priceLast price paidUpper-bound price
Lower-bound priceCompetitor pricesExpected future priceUsual discounted price
12-7
Price Cues
“Left to right” pricing ($299 vs. $300)Odd number discount perceptionsEven number value perceptionsEnding prices with 0 or 5“Sale” written next to price
12-8
When to Use Price Cues
Customers purchase item infrequentlyCustomers are newProduct designs vary over timePrices vary seasonallyQuality or sizes vary across stores
12-9
Tiers in Pricing
12-10
Steps in Setting Price
Select the price objective
Determine demand
Estimate costs
Analyze competitor price mix
Select pricing method
Select final price12-11
Step 1: Selecting the Pricing Objective
SurvivalMaximum current profitMaximum market shareMaximum market skimmingProduct-quality leadershipOther
12-12
Step 2: Determining Demand
Price Sensitivity
Estimating Demand Curves
Price Elasticity of Demand
12-13
Factors Leading to Less Price Sensitivity
The product is more distinctiveBuyers are less aware of substitutesBuyers cannot easily compare the quality of substitutesExpenditure is a smaller part of buyer’s total incomeExpenditure is small compared to the total costPart of the cost is paid by another partyProduct is used with previously purchased assetsProduct is assumed to have high quality and prestigeBuyers cannot store the product
12-14
Inelastic and Elastic Demand
12-15
Step 3: Estimating Costs
Types of Costs
Target Costing
Activity-Based Cost Accounting
Accumulated Production
12-16
Cost Terms and Production
Fixed costsVariable costsTotal costsAverage costCost at different levels of production
12-17
Cost Per Unit at Different Levels of Production
12-18
Cost per Unit as a Function of Accumulated Production
12-19
Target Costing
12-20
Step 4: Analyzing Competitor’s Costs, Prices and Offers
12-21
Step 5: Selecting a Pricing Method
12-22
Markup pricingTarget-return pricingPerceived-value pricingValue pricingGoing-rate pricingAuction-type pricing
Determining Target-Return Price and Break-Even Volume
12-23
Dollar Store Pricing
12-24
12-25
Auction-Type Pricing
English
Dutch
Sealed-Bid
Step 6: Selecting the Final Price
Impact of other marketing activitiesCompany pricing policiesGain-and-risk sharing pricingImpact of price on other parties
12-26
Price-Adaptation Strategies
Geographical Pricing
Discounts/Allowances
Differentiated Pricing
Promotional Pricing
12-27
12-28
Geographical Pricing
Pricing varies by location
Price Discounts and Allowances
DiscountQuantity discountFunctional discountSeasonal discountAllowances
12-29
12-30
Promotional Pricing Tactics
Loss-leader pricingSpecial-event pricingCash rebatesLow-interest financingLonger payment termsWarranties and service contractsPsychological discounting
12-31
Differentiated Pricing
Customer-segment pricingProduct-form pricingImage pricingChannel pricingLocation pricingTime pricingYield pricing
Should We Raise Prices?Profits Before and After a Price Increase
12-32
Traps in Price Cutting Strategies
Low-quality trapFragile-market-share trap Shallow-pockets trapPrice-war trap
12-33
12-34
Methods for Increasing Prices
Delayed quotation pricingEscalator clausesUnbundlingReduction of discounts
12-35
Responses to Competitors’ Price Changes
Maintain priceMaintain price and add valueReduce priceIncrease price and improve qualityLaunch a low-price fighter line