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APPLIED MARKETING Session 5 Yummy Bar 12.50 kc Choco-Bar 9.90 kc What does Price do? Names Terms of Exchange Signifies Quality Shapes the Value of the Product How? Motivating consumer to rethink and better understand what they are being offered What you need to know before determining price 1. 2. 3. 4. Costs Competitors Customers and Value Corporate Strategy Slide 16.5 The 3 C’s and Pricing Models Models: Markup pricing Going-rate pricing Perceived-value pricing Value pricing Premium pricing Auction-type pricing Kotler, Keller, Brady, Goodman and Hansen, Marketing Management, 1st Edition © Pearson Education Limited 2009 Costs (costs plus or markup) = Product Cost Analyze competitors’ costs, prices and offers Consider the nearest competitor’s price Evaluate worth to customer for differentiated features Judge whether the customer will be willing to pay more Anticipate response from competition – what would you do in competition’s place? Where do customers perceive value? Features Buyer’s image of product performance Ability to deliver on time Warranty Customer support Supplier reputation Trustworthiness and Reliability Esteem End user of the product Slide 16.9 Strategic Decisions: the pricing objective Survival Maximum current profit Maximum market share Maximum market skimming Product-quality leadership Kotler, Keller, Brady, Goodman and Hansen, Marketing Management, 1st Edition © Pearson Education Limited 2009 Porter’s Generic Strategies Target Scope Competitive Advantage Low Cost Product Uniqueness Broad (industry wide) Overall Cost Leadership Differentiation Narrow (market segment) Cost Focus Differentiation Focus Price-adaptation strategies Geographical pricing Discounts/allowances Promotional pricing Differentiated pricing Bundle pricing Communicating with Customers by Using Price Commodification = Products become “commodities” Skepticism, routinized behavior, minimal expectations, prefer swift and effortless transactions All product dimensions are equally palatable, differences are not worth investigating Not about products, but about customers (vs. actual commodities) Objective is to reengage buyer who is past caring Tires, Explosives, Car Insurance Using Price – Change Parameters Adjust price structure to clarify advantages Move away from “units sold” model Examples Goodyear, price on “miles/km” expectation, rather than engineering Orica, price on fragmentation of rock rather than explosive Norwich Union, insurance based on miles driven, rather than risk Using Price - Overpricing Thought-provoking effect of moderate overpricing (50% to 80%) Consumer: “Why is this so much more expensive?” Revives considerations and recall of other features Apple computers, Starbucks, etc. Using Price - Partitioning Use partitioning to highlight overlooked benefits Showing broken down pricing can cause consumers to revise behavior Unbundling Cable television (channels, set top box, internet) Low cost airlines (flight, luggage, food) Using Price – Single Price Point Customer focuses on choice, rather than price Swatch -- which is right for me? iTunes Varying $0.89 to $1.29 Uniform $1.29 Likelihood of Purchase (1 to 5) 2.77 3.63 Songs per month 5.05 6.13 $25.95 $49.10 Implied annual revenue Using Price – Free Power of Free Free $10 gift certificate, or seven dollars for a $20 gift certificate Amazon France Shipping for 1 Franc (vs. free) Slide 16.18 Presenting the price Price Cues ‘Left to right’ pricing ($299 versus $300) TiVo (VCR vs. Computer) Odd number discount $200 vs. $1000 perceptions vs. Even Apple iPhone number value $600 to $400 perceptions Anchor high value ‘Sale’ written next to price Limited availability Anchoring Use a comparison Kotler, Keller, Brady, Goodman and Hansen, Marketing Management, 1st Edition © Pearson Education Limited 2009 What is a brand? A brand is a name, term, sign, symbol or design or a combination of them, intended to identify the goods or services of one seller or group of sellers and to differentiate them from those of competitors. Most Valuable Global Brands Distinguishing between brand identity and brand image Brand identity is the way a company aims to identify or position itself or its product or service; the visual or verbal expressions of a brand which leads to the psychological or emotional associations that the brand aspires to maintain in the minds of the consumer. Brand image is the way the public actually perceives this aim. The role of brands – for firms (1) Legal protection Create loyalty Serve as a competitive advantage Secure price premium The role of brands – for firms (2) Increase marketing efficiency Attract employees Elicit support from channel partners Help segment markets The role of brands – for customers Signify quality level Facilitate purchasing Reduce risk