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11/14/2011 SETTING PRICES Principles of Marketing Chapter 21 Establishing Prices 1 2 3 4 5 6 • Development of Pricing Objectives • Assessment of target market’s evaluation of price • Evaluation of competitor’s prices • Selection of a basis for pricing • Selection of a pricing strategy • Determination of a specific price Price Objectives Survival Profit ROI Market Share Cash Flow Status Quo Quality Perception 1 11/14/2011 Markets’ view of price VALUE Target market Evaluation of competitor strategies Easiest for consumer products Watch ads Secret shoppers B2B More difficult- especially in competitive situations Includes between intermediaries Basis for pricing Pricing DemandBased Cost- Based CompetitionBased Markup Pricing Cost-plus % of cost % of selling price 2 11/14/2011 Determining a pricing strategy Differential New-Product Product-Line Psychological Professional Promotional Differential Negotiated Bargaining – Haggling (used internationally) Vehicle or large equipment sales Secondary-market pricing Movie tickets, restaurants, personal care Seniors, children, “first 50”, time period Periodic discounting Random discounting Specific items (often to lure into store) Tensile- use of broad statement often using percentages New--product New Skimming • Highest price possible • Faster return on investment Neutral • Price is not a decision factor • Substitutes are prevalent Penetration • Want to gain market share • Lowest price possible based on costs Impacted by costs, customers and competition 3 11/14/2011 Product Line Captive pricing Premium pricing Bait pricing Advertise lower quality product at low price and then consumer purchases a better quality product for more. Price lining Psychological Pricing Reference pricing Comparison to more expensive offering Bundle pricing Value meals at “fast-food” restaurants Multiple- unit pricing Everyday low prices Odd-even pricing Customary pricing Prestige pricing Professional Pricing “Ethical Basis” Attorney fees Consultants Medical Architects Web-designers Various methods By the hour For a project Contingency percentage 4 11/14/2011 Promotional Pricing Price Leaders Specialevent Comparison Discounting Specific price chosen Should align with strategies May need adjustment Has impact on Profits Image Other marketing mix elements 5
