Chapter 7 Developing a Pricing Strategy. COPYRIGHT © 2002 by Thomson Learning, Inc. All Rights...

Chapter 7

Developing a Pricing Strategy

COPYRIGHT © 2002 by Thomson Learning, Inc. All Rights Reserved

The Importance of Pricing

2 fundamental ways to grow revenue– raise your price– increase the quantity you sell

Price is the easiest of all marketing variables to influence– price changes may be implemented immediately


Sellers Considerations in Pricing

CostsDemandCustomer impactCompetitors’ prices


Sellers Must Consider the Following Costs...

Direct– finished goods/components, materials, supplies,

sales commissions & transportation

Indirect– overhead, such as administrative expenses, utilities,

rent & equipment


Additional Pricing Considerations...

All costs, including opportunity costs, should be consideredIt’s difficult to cover cost levels generated by inefficiencyBottom line impacts should be communicated, not just priceMust reflect an understanding of competitors’ pricing strategies


Customer Issues in Pricing...

Contributes to an overall positive evaluation of the purchase decisionDriven by the concept of valueDifferent target markets have different perceptions of valueBuyers have increasing power


Price Elasticity

Percentage change in the quantity demanded compared to the percentage change in priceElasticity increases when the price of substitute products falls


Price Inelasticity

Inelasticity increases when the prices for complementary products fallInelasticity increases when the total expenditure for the product is smallInelasticity increases when situational influences reduce the choices a consumer has


Major Pricing Strategies...Prestige pricing– high end strategy promoting an image of exclusivity &

superior qualityOdd/Even pricing– psychological pricing strategy

Reference pricing– pricing slightly below the competition

Price Bundling– two or more complementary products together for 1

reduced price


Prestige Pricing...

Name some companies that successfully use a prestige pricing strategy.How does this 1 marketing variable assist in defining the product’s positioning in consumers minds?


Price Bundling...

Give examples of companies that successfully couple their complementary product together.Why are some companies willing to discount their prices to be packaged with another product?


Fixed Versus Negotiated Pricing

Internet websites have increased the popularity of price biddingHistorically the auto industry has used negotiated pricingNegotiated pricing is common in business marketingNegotiated pricing can be a long and frustrating process


Legal & Ethical Issues in Pricing

Price fixing– antitrust issues

Deceptive pricing– fraud

Superficial discountingPrice discrimination

Chapter 7 Developing a Pricing Strategy. COPYRIGHT © 2002 by Thomson Learning, Inc. All Rights...

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Transcript of Chapter 7 Developing a Pricing Strategy. COPYRIGHT © 2002 by Thomson Learning, Inc. All Rights...