Designing Pricing Strategies and Programs
description
Transcript of Designing Pricing Strategies and Programs
To accompany A Framework for Marketing Management, 2nd Edition Slide 1 in Chapter 13©2003 Prentice Hall, Inc.
Chapter 13Chapter 13
Designing Pricing Designing Pricing Strategies and ProgramsStrategies and Programs
PowerPoint by Karen E. JamesPowerPoint by Karen E. JamesLouisiana State University - ShreveportLouisiana State University - Shreveport
To accompany A Framework for Marketing Management, 2nd Edition Slide 2 in Chapter 13©2003 Prentice Hall, Inc.
ObjectivesObjectives
Understand how companies price a new good or service.
Identify how prices can be adapted to meet varying circumstances.
Learn when price changes should be initiated and how soon companies should respond to competitive price changes.
To accompany A Framework for Marketing Management, 2nd Edition Slide 3 in Chapter 13©2003 Prentice Hall, Inc.
Price Has Many NamesPrice Has Many Names
Rent
Tuition
Fare
Monthly payment
Fee
Dues
Interest
Donation
To accompany A Framework for Marketing Management, 2nd Edition Slide 4 in Chapter 13©2003 Prentice Hall, Inc.
Setting the PriceSetting the Price
Pricing Procedure
Select pricing objective
Determine demand
Estimate costs
Analyze competition
Select pricing method
Select final price
Survival
Maximize current profits
Maximize market share
– Penetration strategy
Market skimming
– Skimming strategy
Product quality leaders
Partial cost recovery
To accompany A Framework for Marketing Management, 2nd Edition Slide 5 in Chapter 13©2003 Prentice Hall, Inc.
Setting the PriceSetting the Price
Pricing Procedure
Select pricing objective
Determine demand
Estimate costs
Analyze competition
Select pricing method
Select final price
Understand factors that affect price sensitivity
Estimate demand curves
Understand price elasticity of demand– Elasticity– Inelasticty
To accompany A Framework for Marketing Management, 2nd Edition Slide 6 in Chapter 13©2003 Prentice Hall, Inc.
Marketing StrategiesMarketing Strategies
Product is more distinctive
Buyers are less aware of substitutes
Buyers cannot easily compare quality of substitutes
The expenditure is a lower part of buyer’s total income
The expenditure is small compared to the total cost
Part of the cost is borne by another party
The product is used with assets previously bought
The product is assumed to have more quality, prestige, or exclusiveness
Buyers cannot store the product
Conditions Under Which Consumers are Less Price Sensitive:
To accompany A Framework for Marketing Management, 2nd Edition Slide 7 in Chapter 13©2003 Prentice Hall, Inc.
Marketing StrategiesMarketing Strategies
There are few or no substitutes
Buyers do not readily notice the higher price
Buyers are slow to change their buying habits and search for lower prices
Buyers think higher prices are justified
Conditions Under Which Demand is Less Elastic:
To accompany A Framework for Marketing Management, 2nd Edition Slide 8 in Chapter 13©2003 Prentice Hall, Inc.
Setting the PriceSetting the Price
Pricing Procedure
Select pricing objective
Determine demand
Estimate costs
Analyze competition
Select pricing method
Select final price
Types of costs and levels of production must be considered
Accumulated production leads to cost reduction via the experience curve
Differentiated marketing offers create different cost levels
To accompany A Framework for Marketing Management, 2nd Edition Slide 9 in Chapter 13©2003 Prentice Hall, Inc.
Setting the PriceSetting the Price
Key Pricing Terms:
– Fixed costs: do not vary directly with changes in level of production
– Variable costs: vary with production– Total costs: sum of fixed and variable
costs a given level of production– Average cost: cost per unit at a given
level of production
To accompany A Framework for Marketing Management, 2nd Edition Slide 10 in Chapter 13©2003 Prentice Hall, Inc.
Setting the PriceSetting the Price
Pricing Procedure
Select pricing objective
Determine demand
Estimate costs
Analyze competition
Select pricing method
Select final price
Firms must analyze the competition with respect to:
– Costs– Prices– Possible price reactions
Pricing decisions are also influenced by quality of offering relative to competition
To accompany A Framework for Marketing Management, 2nd Edition Slide 11 in Chapter 13©2003 Prentice Hall, Inc.
Setting the PriceSetting the Price
Pricing Procedure
Select pricing objective
Determine demand
Estimate costs
Analyze competition
Select pricing method
Select final price
Price-setting begins with the three “C’s”
Select method:
– Markup pricing– Target-return pricing– Perceived-value pricing– Value pricing– Going-rate pricing– Auction-type pricing– Group pricing
To accompany A Framework for Marketing Management, 2nd Edition Slide 12 in Chapter 13©2003 Prentice Hall, Inc.
Setting the PriceSetting the Price
Pricing Procedure
Select pricing objective
Determine demand
Estimate costs
Analyze competition
Select pricing method
Select final price
Requires consideration of additional factors:
– Psychological pricing– Gain-and-risk-sharing
pricing– Influence of other
marketing mix variables– Company pricing
policies– Impact of price on other
parties
To accompany A Framework for Marketing Management, 2nd Edition Slide 13 in Chapter 13©2003 Prentice Hall, Inc.
Adapting the PriceAdapting the Price
Geographical Pricing
– Barter
– Compensation deal
– Buyback arrangement
– Offset
To accompany A Framework for Marketing Management, 2nd Edition Slide 14 in Chapter 13©2003 Prentice Hall, Inc.
Adapting the PriceAdapting the Price
Cash discounts
Quantity discounts
Trade-in allowances
Functional discounts
Seasonal discounts
Promotion allowances
Price Discounts and Allowances:
To accompany A Framework for Marketing Management, 2nd Edition Slide 15 in Chapter 13©2003 Prentice Hall, Inc.
Adapting the PriceAdapting the Price
Loss-leader pricing
Special-event pricing
Cash rebates
Low-interest financing
Longer payment terms
Warranties and service contracts
Psychological discounting
Promotional Pricing Tactics:
To accompany A Framework for Marketing Management, 2nd Edition Slide 16 in Chapter 13©2003 Prentice Hall, Inc.
Adapting the PriceAdapting the Price
Customer segment pricing
Product-form pricing
Image pricing
Channel pricing
Location pricing
Time pricing
Discriminatory Pricing Tactics:
To accompany A Framework for Marketing Management, 2nd Edition Slide 17 in Chapter 13©2003 Prentice Hall, Inc.
Adapting the PriceAdapting the Price
Price discrimination works when:
– Market segments show different intensities of demand
– Consumers in lower-price segments can not resell to higher-price segments
– Competitors can not undersell the firm in higher-price segments
– Cost of segmenting and policing the market does not exceed extra revenue
To accompany A Framework for Marketing Management, 2nd Edition Slide 18 in Chapter 13©2003 Prentice Hall, Inc.
Adapting the PriceAdapting the Price
Product-line pricing
Optional-feature pricing
Captive-product pricing
Two-part pricing
By-product pricing
Product-bundle pricing
Product-Mix Pricing Tactics:
To accompany A Framework for Marketing Management, 2nd Edition Slide 19 in Chapter 13©2003 Prentice Hall, Inc.
Initiating and Responding Initiating and Responding to Price Changesto Price Changes
Strategic Options Include:
– Maintain price and perceived quality; selectively prune customers
– Raise price and perceived quality– Partially cut price and raise quality– Fully cut price, maintain perceived quality– Maintain price, reduce perceived quality– Introduce an economy model
To accompany A Framework for Marketing Management, 2nd Edition Slide 20 in Chapter 13©2003 Prentice Hall, Inc.
Initiating and Responding Initiating and Responding to Price Changesto Price Changes
Key Considerations
Initiating price cuts
Initiating price increases
Reactions to price changes
Responding to competitor’s price changes
Circumstances leading to price cuts:– Excess plant capacity– Declining market share– Attempt to dominate the
market via lower costs Price cutting traps:
– Price/quality perceptions– Low prices don’t create
market loyalty– Competition may match
or beat price cuts
To accompany A Framework for Marketing Management, 2nd Edition Slide 21 in Chapter 13©2003 Prentice Hall, Inc.
Initiating and Responding Initiating and Responding to Price Changesto Price Changes
Key Considerations
Initiating price cuts
Initiating price increases
Reactions to price changes
Responding to competitor’s price changes
Circumstances leading to price increases:– Cost inflation– Overdemand
Methods of dealing with overdemand:– Delayed quotation
pricing– Escalator clauses– Unbundling– Reduction of discounts
To accompany A Framework for Marketing Management, 2nd Edition Slide 22 in Chapter 13©2003 Prentice Hall, Inc.
Initiating and Responding Initiating and Responding to Price Changesto Price Changes
Key Considerations
Initiating price cuts
Initiating price increases
Reactions to price changes
Responding to competitor’s price changes
Firms must monitor both customer and competitor reactions
Competitor reactions are common when:
– Few firms offer the product
– The product is homogeneous
– Buyers are highly informed
To accompany A Framework for Marketing Management, 2nd Edition Slide 23 in Chapter 13©2003 Prentice Hall, Inc.
Initiating and Responding Initiating and Responding to Price Changesto Price Changes
Key Considerations
Initiating price cuts
Initiating price increases
Reactions to price changes
Responding to competitor’s price changes
The degree of product homogeneity affects how firms respond to price cuts initiated by the competition
Market leaders can respond to aggressive price cutting by smaller competitors in several ways
To accompany A Framework for Marketing Management, 2nd Edition Slide 24 in Chapter 13©2003 Prentice Hall, Inc.
Initiating and Responding Initiating and Responding to Price Changesto Price Changes
Maintain price and profit margin
Maintain price, add value
Increase price, improve quality
Launch a low-price fighter line
Market Leader Responses to Competitor Initiated Price Cuts:
Reduce price