Download Psychological pricing

Pricing
October 26, 2015
How much?
The various pricing techniques & The steps in setting
prices
Let's assume Nike sells $35 million a year
in socks. If the total amount of socks sold
from all companies within the market totals
$110 million, then Nike has a market share
equal to
a. 31.8%
b. 31.7%
c. 31.9%
d. 35%
Hint:
Your Sales
Total Sales
Pepsi has a taste test to gather opinions on a
new drink they are offering, is an example
of what function?
a.
b.
c.
d.
channel management
marketing information management
product/service management
surveying
John’s Deli is 10% higher than other
restaurants but located only a block from
UofL campus, John, maximizes the Deli’s
profit every month. What competition is
John’s Deli engaging in?
a.
b.
c.
d.
location
price
nonprice
service
Rooms at the Holiday Inn go for $155 a night. At least 55
rooms a night must be filled to cover costs. For a marathon
that rates are dropped by 10% as a special. How much does
the hotel need to cover costs? _____________ How many
rooms must it fill for the marathon night to break even?
A small manufacturer of cell phone accessories invest
$220,000 in materials and labor to make 25,000
phone cases. The cost to make to package, advertise,
sell, and ship the cell phone cases amounts $85,000.
What is the cell phone case manufacturer’s return on
investment if only 30,000 cases sell this year at
$32.99?
 psychological pricing
 odd-even pricing
 prestige pricing
 everyday low prices
(EDLP)
 price lining
 discount pricing
 trade discounts
 seasonal discounts
 multiple-unit pricing
 bundle pricing
 promotional pricing
Two common pricing techniques
marketers use are:
 psychological pricing
 discount pricing
8
Psychological Pricing
Psychological pricing refers to techniques that
create an illusion for customers or that make
shopping easier for them. Common psychological
pricing techniques are:
 odd-even pricing
 prestige pricing
 multiple-unit pricing
 bundle pricing
 promotional pricing
 everyday low prices (EDLP)
 price lining
9
Psychological Pricing
Odd-even pricing
involves setting prices that
end in either odd or even
numbers. Odd numbers
convey a bargain image;
even numbers convey
quality.
Prestige pricing
involves setting
higher-than-average
prices to suggest status
and prestige.
Psychological Pricing
Promotional pricing is generally used in
conjunction with sales promotions when
prices are lower than average.
 Loss-leader pricing provides items
at cost to attract customers.
 In special-event pricing, prices are
reduced for a short period of time,
such as a holiday sale.
Everyday low prices (EDLP) are low prices
that are set on a consistent basis with no
intention of raising them or offering discounts
in the future.
Price lining involves offering all
merchandise in a given category at certain
prices, such as $25, $35, and $50.
Discount pricing involves the seller's offering
reductions from the usual price. They include:
 cash
 quantity
 trade
 seasonal discounts
 promotional discounts and allowances
Cash discounts are offered to buyers to
encourage them to pay their bills quickly.
Quantity discounts are offered to buyers for
placing large orders.
 Noncumulative quantity discounts are
offered on one order.
 Cumulative quantity discounts are offered
on all orders over a specified period of time.
Seasonal discounts are offered to buyers
willing to buy at a time outside the
customary buying season.
Promotional discounts are offered to
wholesalers and retailers willing to advertise
or promote a manufacturer's products.
Allowances are granted to customers for
selling back an old model.
These are the six steps in determining a price
for an item:
1. Determine pricing objectives.
2. Study costs.
3. Estimate demand.
4. Study competition.
5. Decide on a pricing strategy.
6. Set price.
Types of
Psychological
Pricing
OddEven
Pricing
Prestige
Pricing
Price
Lining
Everyday
Low Prices
(EDLP)
Psychological
Pricing
Promotional
Pricing
MultipleUnit
Pricing
Bundle
Pricing
Introductory
Stage
Growth
Stage
Maturity
Stage
Decline
Stage
Sales
Profits
Dollars
0
Time
•
•
•
•
•
•
•
•
Full-Scale Launch
of New Products
High failure rates
Little competition
Frequent product modification
Limited distribution
High marketing and production
costs
Negative profits
Promotion focuses on awareness
and information
Intensive personal selling to
channels
•
•
•
•
•
•
•
•
Offered in more
Increasing rate of sales
sizes,
Entrance of competitors
flavors, options
Market consolidation
Initial healthy profits
Promotion emphasizes brand ads
Goal is wider distribution
Prices normally fall
Development costs are recovered
•
•
•
•
•
•
•
•
Many consumer
products are in
Maturity Stage
Declining sales growth
Saturated markets
Extending product line
Stylistic product changes
Heavy promotions to dealers and consumers
Marginal competitors drop out
Prices and profits fall
Niche marketers emerge
• Long-run drop in sales
• Large inventories of
unsold items
• Elimination of all nonessential
marketing expenses
Rate of decline depends on
change in tastes or
adoption of substitute products
How stages of the product life cycle relate to firm’s
marketing objectives & marketing mix actions
INTRODUCTION
Product
Strategy
Limited models
Frequent
changes
GROWTH
MATURITY
DECLINE
More models
Frequent
changes.
Large number
of models.
Eliminate
unprofitable
models
Distribution
Strategy
Limited
Expanded
Wholesale/
dealers. Longretail distributors term relations
Extensive.
Margins drop.
Shelf space
Phase out
unprofitable
outlets
Promotion
Strategy
Awareness.
Aggressive ads.
Stimulate
Stimulate
demand.Sampling
demand
Pricing
Strategy
Higher/recoup
development
costs
Fall as result of
competition &
efficient production.
Advertise.
Promote
heavily
Prices fall
(usually).
Phase out
promotion
Prices
stabilize at
low level.
1. How are odd-even, prestige, multiple-unit,
2.
3.
4.
5.
and bundle pricing related? Different?
What is the main difference between
promotional pricing and everyday low prices?
What is the key factor in deciding on price
lines?
Name five types of discount pricing
techniques.
List the six steps in setting prices.