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MARKETING MANAGEMENT
12th edition
14
Developing Pricing
Strategies and
Programs
Kotler
Keller
Chapter Questions
• How do consumers process and evaluate
prices?
• How should a company set prices initially for
products or services?
• How should a company adapt prices to meet
varying circumstances and opportunities?
• When should a company initiate a price
change?
• How should a company respond to a
competitor’s price challenge?
14-2
Whirlpool’s Duet
combo is nearly
four times the
price of
comparable
models
14-3
Synonyms for Price
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Rent
Tuition
Fee
Fare
Rate
Toll
Premium
Honorarium
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Special assessment
Bribe
Dues
Salary
Commission
Wage
Tax
14-4
Common Pricing Mistakes
• Determine costs and take traditional
industry margins
• Failure to revise price to capitalize on
market changes
• Setting price independently of the rest of
the marketing mix
• Failure to vary price by product item,
market segment, distribution channels, and
purchase occasion
14-5
Consumer Psychology and Pricing
Reference Prices
Price-quality inferences
Price endings
Price cues
14-6
Table 14.1 Possible Consumer
Reference Prices
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“Fair price”
Typical price
Last price paid
Upper-bound price
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Lower-bound price
Competitor prices
Expected future price
Usual discounted
price
14-7
Table 14.2 Consumer
Perceptions vs. Reality for Cars
Overvalued Brands
• Land Rover
• Kia
• Volkswagen
• Volvo
• Mercedes
Undervalued Brands
• Mercury
• Infiniti
• Buick
• Lincoln
• Chrysler
14-8
Price Cues
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“Left to right” pricing ($299 versus $300)
Odd number discount perceptions
Even number value perceptions
Ending prices with 0 or 5
“Sale” written next to price
14-9
When to Use Price Cues
• Customers purchase
item infrequently
• Customers are new
• Product designs vary
over time
• Prices vary seasonally
• Quality or sizes vary
across stores
14-10
Steps in Setting Price
Select the price objective
Determine demand
Estimate costs
Analyze competitor price mix
Select pricing method
Select final price
14-11
Step 1: Selecting the Pricing
Objective
• Survival
• Maximum current
profit
• Maximum market
share
• Maximum market
skimming
• Product-quality
leadership
14-12
Figure 14.1 Price Tiers in the Ice
Cream Market
14-13
Step 2: Determining Demand
Price Sensitivity
Estimating
Demand Curves
Price Elasticity
of Demand
14-14
Figure 14.2 Inelastic and Elastic Demand
14-15
Step 3: Estimating Costs
Types of Costs
Accumulated
Production
Activity-Based
Cost Accounting
Target Costing
14-16
Cost Terms and Production
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Fixed costs
Variable costs
Total costs
Average cost
Cost at different levels
of production
14-17
Figure 14.4 Cost per Unit as a Function of
Accumulated Production
14-18
9 Lives Uses Target Costing
14-19
Step 5: Selecting a
Pricing Method
• Markup pricing
• Target-return pricing
• Perceived-value
pricing
• Value pricing
• Going-rate pricing
• Auction-type pricing
14-20
Figure 14.6 Break-Even Chart
14-21
Auction-Type Pricing
English auctions
Dutch auctions
Sealed-bid auctions
14-22
Step 6: Selecting the Final Price
• Impact of other
marketing activities
• Company pricing
policies
• Gain-and-risk sharing
pricing
• Impact of price on other
parties
14-23
Price-Adaptation Strategies
Geographical Pricing
Discounts/Allowances
Promotional Pricing
Differentiated Pricing
14-24
Price-Adaptation Strategies
Countertrade
• Barter
• Compensation deal
• Buyback
arrangement
• Offset
Discounts/ Allowances
• Cash discount
• Quantity discount
• Functional discount
• Seasonal discount
• Allowance
14-25
Promotional Pricing Tactics
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Loss-leader pricing
Special-event pricing
Cash rebates
Low-interest financing
Longer payment terms
Warranties and
service contracts
• Psychological
discounting
14-26
Differentiated Pricing and
Price Discrimination
• Customer-segment
pricing
• Product-form pricing
• Image pricing
• Channel pricing
• Location pricing
• Time pricing
• Yield pricing
14-27
Table 14.5 Profits Before and
After a Price Increase
14-28
Increasing Prices
Delayed quotation pricing
Escalator clauses
Unbundling
Reduction of discounts
14-29
Figure 14.7 Price-Reaction Program for Meeting
Competitor’s Price Cut
14-30
Brand Leader Responses to
Competitive Price Cuts
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Maintain price
Maintain price and add value
Reduce price
Increase price and improve quality
Launch a low-price fighter line
14-31
Marketing Debate
 Is the right price a fair price?
Take a position:
1. Prices should reflect the value that
consumers are willing to pay.
2. Prices should primarily just reflect the cost
involved in making a product.
14-32
Marketing Discussion
 As a consumer, which pricing
method do you personally
prefer to deal with? Why?
14-33