chapter 26 pricing strategies 1 marketing essentials chapter 26 pricing strategies section 26.2...

Chapter 26 Pricing Strategies 1

Marketing EssentialsMarketing Essentials

Chapter 26 Pricing Strategies

Section 26.2 Setting Prices


SECTION 26.2SECTION 26.2

What You'll LearnWhat You'll Learn

Setting PricesSetting Prices

The various pricing techniques

The steps in setting prices


SECTION 26.2SECTION 26.2 Setting PricesSetting Prices

Why It's ImportantWhy It's Important

Now that you have studied pricing concepts and policies, it is time to look at the special pricing techniques that help companies achieve their business goals. Then you will put all of that information into a single process: the steps for determining price.



Key TermsKey Terms

psychological pricing

odd-even pricing

prestige pricing

multiple-unit pricing

bundle pricing

promotional pricing

everyday low prices (EDLP)

price lining

discount pricing

trade discounts

seasonal discounts



Two common pricing techniques marketers use are:

psychological pricing

discount pricing

Pricing Techniques



Psychological Pricing

Psychological pricing refers to techniques that create an illusion for customers or that make shopping easier for them. Common psychological pricing techniques are:

odd-even pricing prestige pricing multiple-unit pricing bundle pricing promotional pricing everyday low prices (EDLP) price lining

Slide 1 of 5




Odd-even pricing involves setting prices that end in either odd or even numbers. Odd numbers convey a bargain image; even numbers convey quality.

Prestige pricing involves setting higher-than-average prices to suggest status and prestige.

Slide 2 of 5




Multiple-unit pricing involves pricing items in multiples to suggest a bargain and increase sales volume.

Bundle pricing involves including several complementary products in a package and pricing them lower as a group than if they were bought separately.

Slide 3 of 5



Promotional pricing is generally used in conjunction with sales promotions when prices are lower than average.

Loss-leader pricing provides items at cost to attract customers.

In special-event pricing, prices are reduced for a short period of time, such as a holiday sale.


Slide 4 of 5



Everyday low prices (EDLP) are low prices that are set on a consistent basis with no intention of raising them or offering discounts in the future.

Price lining involves offering all merchandise in a given category at certain prices, such as $25, $35, and $50.


Slide 5 of 5



Discount pricing involves the seller's offering reductions from the usual price. They include:

cash

quantity

trade

seasonal discounts

promotional discounts and allowances

Discount Pricing

Slide 1 of 4



Cash discounts are offered to buyers to encourage them to pay their bills quickly.

Quantity discounts are offered to buyers for placing large orders.

Noncumulative quantity discounts are offered on one order.

Cumulative quantity discounts are offered on all orders over a specified period of time.

Discount Pricing

Slide 2 of 4



Trade discounts are the way manufacturers quote prices to wholesalers and retailers. Manufacturers establish suggested retail prices for their items, then grant members of the channel of distribution discounts from the list prices for performing their respective functions.

Discount Pricing

Slide 3 of 4



Seasonal discounts are offered to buyers willing to buy at a time outside the customary buying season.

Promotional discounts are offered to wholesalers and retailers willing to advertise or promote a manufacturer's products.

Allowances are granted to customers for selling back an old model.

Discount Pricing

Slide 4 of 4



These are the six steps in determining a price for an item:

1. Determine pricing objectives.

2. Study costs.

3. Estimate demand.

4. Study competition.

5. Decide on a pricing strategy.

6. Set price.

Steps in Setting Prices



What is your purpose in setting a price? Do you want to increase sales volume or sales revenue? Establish a prestigious image? Increase your market share and market position? Answering these questions will help you keep your prices in line with other marketing decisions.

Step 1—Determining Pricing Objectives



Since the main reason for being in business is to make a profit, give careful consideration to the costs involved in making or acquiring the goods or services you will offer for sale. Determine whether and how you can reduce costs without affecting the quality or image of your product.

Step 2—Study Costs



Employ market research techniques to estimate consumer demand. The key to pricing goods and services is to set prices at the level consumers expect to pay. In many cases, those prices are directly related to demand.

Step 3—Estimate Demand



Investigate your competitors to see what prices they are charging for similar goods and services. Study the market leader. What is the range of prices from the ceiling price to the price floor? Will you price your goods lower than, equal to, or higher than your competitors'?

Step 4—Study Competition



You may decide to price your product higher than the competition's because you believe your product is superior. You may decide to set a lower price with the understanding that you will raise it once the product is accepted in the marketplace.

Step 5—Decide on a Pricing Strategy



After you have evaluated all the foregoing factors, apply the pricing techniques that match your strategy and set an initial price. Be prepared to monitor that price and evaluate its effectiveness as conditions in the market change.

Step 6—Set Price


26.2 ASSESSMENTASSESSMENT

Reviewing Key Terms and Concepts

1. How are odd-even, prestige, multiple-unit, and bundle pricing related? Different?

2. What is the main difference between promotional pricing and everyday low prices?

3. What is the key factor in deciding on price lines?

4. Name five types of discount pricing techniques.

5. List the six steps in setting prices.


26.2 ASSESSMENTASSESSMENT

Thinking Critically

Johnson & Johnson promoted its baby shampoo to adult male athletes by touting the product's gentleness, even when used every day. At what stage in the shampoo's life cycle do you think this promotion took place? What do you think Johnson & Johnson was trying to accomplish by promoting its baby shampoo to adult males?


26.2 Graphic OrganizerGraphic Organizer

Types of Psychological Pricing

EverydayLow Prices

(EDLP)

EverydayLow Prices

(EDLP)

PromotionalPricing

PromotionalPricing

BundlePricingBundlePricing

Multiple-Unit

Pricing

Multiple-Unit

Pricing

Odd-Even

Pricing

Odd-Even

Pricing

PriceLiningPriceLining

PrestigePricing

PrestigePricing

PsychologicalPsychologicalPricingPricing

PsychologicalPsychologicalPricingPricing


Marketing EssentialsMarketing Essentials

End of Section 26.2