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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