top 10 concepts of chapter 14
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TOP 10 Learning Concepts
Ch 14: Developing Pricing Strategies and Programs
Bohong LiApril 8 ,2011
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Outline
Consumer Psychology and Pricing Steps in Setting Price Price-Adaptation Strategies
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Concept 1:
Consumer Psychology and Pricing
Reference Prices
Price-quality inferences
Price endings
Price cues
From Philip Kotler’s, Marketing Management, 13th Edition
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Concept 1:Reference Price is the that consumers expect or deem to
be reasonable for a certain type of product.
The way the price is presented
Frame of reference
The price was used to be???
Memory of past prices
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Concept 1:Price-quality inferences
some consumers believe that price and quality are highly correlated whereas other consumers believe that price and quality are not highly correlated.
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Concept 1:Price endings: price ending is a marketing practice based on the theory that certain prices have a psychological impact.
Firms that are using high prices to signal quality are more likely to set those prices at round numbers (9-ending prices)
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Concept 1:Price cues
A price cue is defined as any marketing tactic used to persuade customers that prices offer good value compared to competitors’ prices, past prices or future prices.
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Concept 2:Steps in Setting Price
1. Select the price objective2. Determine demand3. Estimate costs4. Analyze competitor price mix5. Select pricing method6. Select final price
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Concept 3:Step 1: Selecting the Pricing Objective
Survival Maximum current profit Maximum market share Maximum market skimming Product-quality leadership
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Survival: if the companies are plagued with overcapacity, intense competition, or changing consumer wants.
Maximum current profit: if the companies estimate the demand and costs associated with alternative prices
Maximum market share: if they believe that a higher sales volume will lead to lower unites costs and higher long-run profit.
Concept 3:Step 1: Selecting the Pricing Objective
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Maximum market skimming: companies unveiling a new technology favor setting high prices, and slowly drop price over time.
Product-quality leadership: products or services characterized by high levels of perceived quality, taste, and status with a price just high enough not to be out of consumers’ reach.
Concept 3:Step 1: Selecting the Pricing Objective
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Concept 4:Step 2: Determining Demand
Price Sensitivity
Estimating Demand Curves
Price Elasticity of Demand
From Philip Kotler’s, Marketing Management, 13th Edition
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Concept 5:Step 3: Estimating Costs
Types of Costs
AccumulatedProduction
Activity-BasedCost Accounting
From Philip Kotler’s, Marketing Management, 13th Edition
Target Costing
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Fixed costs Variable costs Total costs Average cost Cost at different levels of
production
Concept 5:Step 3: Estimating Costs
From Philip Kotler’s, Marketing Management, 13th Edition
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Markup pricing Target-return pricing Perceived-value pricing Value pricing Going-rate pricing Auction-type pricing
Concept 6:Step 5: Selecting a Pricing Method
From Philip Kotler’s, Marketing Management, 13th Edition
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Impact of other marketing activities
Company pricing policies Gain-and-risk sharing pricing Impact of price on other parties
Concept 7:Step 6: Selecting the Final Price
From Philip Kotler’s, Marketing Management, 13th Edition
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Barter Compensation deal Buyback
arrangement Offset
Concept 8:Price-Adaption Strategy 1&2 : Geographical Pricing& Discounts/Allowances
Countertrade
From Philip Kotler’s, Marketing Management, 13th Edition
Discounts/Allowances Cash discount
Quantity discount Functional discount Seasonal discount Allowance
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Loss-leader pricing Special-event pricing Cash rebates Low-interest financing Longer payment terms Warranties and service contracts Psychological discounting
Concept 9: Price-Adaption Strategy 3 : Promotional Pricing
From Philip Kotler’s, Marketing Management, 13th Edition
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Customer-segment pricing Product-form pricing Channel pricing Location pricing Time pricing Yield pricing
Concept 10: Price-Adaption Strategy 4 : Differentiated Pricing
From Philip Kotler’s, Marketing Management, 13th Edition
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Differentiated pricingTypes Definition Example
Customer-segment pricing Different customer groups pay different prices for the same product or service.
Museums often charge a lower admission fee to students and senior citizens.
Product-form pricing
Different versions of the product are priced differently, but not proportionately to their costs.
In America, Evian prices a 48-ounce bottle of its mineral water at $2.00. It takes the same water and packages 1.7 ounces in a moisturizer spray for $6.00.
Image pricingSome companies price the same product at two different levels based on images differences.
A perfume manufacture can put the perfume in one bottle, give it a name and image, and price it at €10 an ounce; put the same perfume in another bottle with a different name and image and price it at €30 an ounce.
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Differentiated pricingTypes Definition Example
Channel pricing Price the same product by different channels.
Coca-Cola carries a different price depending on whether the consumer purchase it in a fine restaurant, a fast-food restaurant, or a vending machine.
Location pricing
The same product is priced differently at different locations even through the cost of offering it at different location is the same.
A theater varies its seats prices according to audience preferences for different locations.
Time pricing Prices are varied by seasons, day, or hour.
Restaurant charge less to “early bird” customers, and some hotels charge less on weekends.
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Summary
Consumer Psychology and Pricing Steps in Setting Price Price-Adaptation Strategies
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TOP 2 Learning Concepts
Ch 14: Developing Pricing Strategies and Programs
Bohong LiApril 1 ,2011