Chapter 7
Developing a Pricing Strategy
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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
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Sellers Considerations in Pricing
CostsDemandCustomer impactCompetitors’ prices
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Sellers Must Consider the Following Costs...
Direct– finished goods/components, materials, supplies,
sales commissions & transportation
Indirect– overhead, such as administrative expenses, utilities,
rent & equipment
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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
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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
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Price Elasticity
Percentage change in the quantity demanded compared to the percentage change in priceElasticity increases when the price of substitute products falls
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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
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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
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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?
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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?
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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
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Legal & Ethical Issues in Pricing
Price fixing– antitrust issues
Deceptive pricing– fraud
Superficial discountingPrice discrimination
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