marketing: an introduction - national paralegal college · learning objective 9-2 summary...

Marketing: An IntroductionThirteenth Edition

Chapter 9

Pricing:

Understanding

and Capturing

Customer Value

Copyright © 2017, 2015, 2013 Pearson Education, Inc. All Rights Reserved


First Stop: Amazon Versus Walmart A

Price War for Online Supremacy

Achieving online supremacy

will take more than winning an

online price war.


Price

• Amount of money charged for a product or service

• Determines a firm’s market share and profitability

• Produces revenue


Figure 9.1 - Considerations in Setting

Price


Customer Value-Based Pricing

• Based on buyers’ perceptions of value rather than on

the seller’s cost

• Price is considered before the marketing program is

set.

• Types of value-based pricing:

– Good-value pricing

– Value-added pricing


Value-Added Pricing

AMC’s Cinema Suites

are adding amenities

and charging more.


Figure 9.2 - Value-Based Pricing

versus Cost-Based Pricing


Cost-Based Pricing

• Based on the costs of producing, distributing, and

selling the product plus a fair rate of return for effort

and risk

• Types of costs:

– Fixed costs (overhead)

– Variable costs

– Total costs


Types of Cost-Based Pricing

Cost-plus pricing (markup pricing)

• Adding a standard markup to the cost of the product

Break-even pricing (target return pricing)

• Setting price to break even on the costs of making and

marketing a product, or setting price to make a target

return


Figure 9.3 - Break-Even Chart for Determining

Target Return Price and Break-Even Volume


Competition-Based Pricing (1 of 2)

• Setting prices based on competitors’ strategies, costs,

prices, and market offerings

• Company should ask several questions to assess

competitors’ pricing strategies:

– How does the company’s market offering compare in

terms of customer value?

– How strong are current competitors?

– What are their current pricing strategies?


Competition-Based Pricing (2 of 2)

Caterpillar dominates

the heavy equipment

industry despite

charging premium

prices.


Learning Objective 9-1 Summary

• The three major pricing strategies include

– Customer value-based pricing

– Cost-based pricing

– Competition-based pricing

• Customer value perceptions, company costs and

competitor strategies are important considerations

when setting prices.


Considerations Affecting Pricing

Decisions

• Internal factors

– Overall marketing strategy, objectives, and mix

– Organizational considerations

• External factors

– Market and demand

– Economy

– Impact on other parties in its environment


Overall Marketing Strategy,

Objectives, and Mix

• Pricing decisions must coordinate with packaging,

promotion, and distribution decisions.

• Positioning may be based on price.

– Target costing starts with an ideal selling price, then

targets costs that ensure the price is met.

• Nonprice positions can be created to differentiate the

marketing offer.


Organizational Considerations

• Management decides who should set prices.

• Varies depending on the size and type of company

– Small companies - Top management

– Large companies - Divisional or product managers

– Industries with price as the key factor - Pricing

departments


Pricing in Different Types of Markets

• Pure competition

• Monopolistic competition

• Oligopolistic competition

• Pure monopoly


Pricing in Oligopolistic Markets

Price is an important

competitive tool for

DirecTV and other

cable providers.


Figure 9.4 - Demand Curve


Price Elasticity of Demand

• Measure of the sensitivity of demand to changes in

price

– Inelastic demand: Demand hardly changes with a small

change in price.

– Elastic demand: Demand changes greatly with a small

change in price.


Economy

Factors impacting pricing strategies

• Boom or recession

• Inflation

• Interest rates

Responses to the frugality of post recession

consumers

• Cut prices and offer discounts

• Develop more affordable items

• Redefine value propositions


Other External Factors

• Company must consider several other factors in its

external environment when setting prices.

– Resellers

– Government

– Social concerns



• Factors affecting a firm’s pricing decisions:

– Internal – marketing strategy, objectives, marketing mix,

and organizational considerations

– External – nature of market, demand, economy,

reseller needs, and government actions


New Product Pricing Strategies (1 of 2)

Market-skimming pricing (price skimming)

• Setting a high price to skim maximum revenues from the

segments willing to pay the high price

• Company makes fewer but more profitable sales

Market-penetration pricing

• Setting a low price to attract a large number of buyers and

a large market share


New Product Pricing Strategies (2 of 2)

Samsung has used low

initial prices in emerging

mobile device markets.



• Strategies for pricing new products include

– Market-skimming pricing

– Market-penetrating pricing


Product Mix Pricing Strategies

• Product line pricing

• Optional-product pricing

• Captive-product pricing

• By-product pricing

• Product bundle pricing


Product Mix Pricing

Nearly 77 percent of Keurig’s sales

come from its K-Cup portion packs.



• The firm uses the following pricing strategies to

maximize the profits from the total mix:

– Product line pricing

– Optional products

– Captive products

– By-products

– Product bundles


Price Adjustment Strategies

• Discount and allowance pricing

• Segmented pricing

• Psychological pricing

• Promotional pricing

• Geographical pricing

• Dynamic pricing

• International pricing


Discount and Allowance Pricing

• Discount - a straight reduction in price on purchases

during a stated period of time or of larger quantities

– Cash, quantity, functional, and seasonal discounts

• Allowance - promotional money paid to retailers for

an agreement to feature the manufacturer’s products

in some way

– Trade-in and promotional allowances


Segmented Pricing

• Selling a product or service at two or more prices,

where the difference in prices is not based on

differences in costs

• Forms of segmented pricing:

– Customer-segment pricing

– Product form pricing

– Location-based pricing

– Time-based pricing


Psychological Pricing

• Considers the psychology of prices and not simply the

economics

– The price says something about the product.

• Reference prices: Prices that buyers carry in their

minds and refer to when looking at a given product


Promotional Pricing

• Temporarily pricing products below the list price to

increase short-run sales

• Forms of promotional pricing:

– Discounts and special-event pricing

– Limited-time offers and cash rebates

– Low-interest financing and longer warranties

– Free maintenance


Geographical Pricing

• FOB-origin pricing

• Uniform-delivered pricing

• Zone pricing

• Basing-point pricing

• Freight-absorption pricing


Dynamic and Online Pricing (1 of 2)

• Dynamic pricing: Adjusting prices continually to meet

the characteristics and needs of individual customers

and situations

• Prevalent online where the Internet introduces a new

age of fluid pricing


Dynamic and Online Pricing (2 of 2)

With Amazon’s Price

Check, consumers can

get instant product and

price comparisons.


International Pricing

Price decisions of international companies

• Set a uniform worldwide price

• Adjust prices to reflect local market conditions and cost considerations

Prices charged depend on many factors

• Economic conditions

• Competitive situations

• Laws and regulations

• Nature of the wholesaling and retailing system

• Consumer perceptions and preferences

• Company’s marketing objectives

• Costs of selling in another country



• Companies apply a variety of price adjustment

strategies:

– Discount and allowance pricing

– Segmented pricing

– Psychological pricing

– Promotional pricing

– Geographical pricing

– Dynamic pricing

– International pricing


Initiating Price Changes

• Reasons for price cuts:

– Excess capacity

– Falling demand

– Attempt to dominate the market

• Reasons for price increases:

– Cost inflation

– Over-demand


Reactions to Price Changes

Buyer’s perspective

• Price increase:

– Product is more exclusive or

better made.

– Company is being greedy.

• Price cut:

– Brand wants to get a better

deal on an exclusive product.

– Product’s quality has been

reduced.

– Company’s image has

tarnished.

Competitor’s perspective

• Price cut:

– Company is trying to grab a

larger market share.

– Company is doing poorly and

trying to boost its sales.

– Company wants the whole

industry to cut prices to

increase total demand.


Figure 9.5 - Responding to Competitor

Price Changes


Figure 9.6 - Public Policy Issues in

Pricing



• Customers’ and competitors’ reactions must be

considered when initiating a price change.

• Buyer reactions are influenced by the meaning

customers see in the price change.

• Competitors’ reactions flow from a set reaction policy

or an analysis of each situation.

• Any response to a competitor’s price change should

consider many factors.


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marketing: an introduction - national paralegal college · learning objective 9-2 summary...

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