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Presentation prepared by Robin Roberts, Griffith University and
Mike Spark, Swinburne University
Technology
Copyright Johnof
Wiley
& Sons 2007
Chapter 11
Pricing management
Copyright John Wiley & Sons 2007
Chapter Objectives
1. Understand the six major stages of the
process used to establish prices
2. Know the issues that are related to
developing pricing objectives
3. Understand the importance of identifying
the target market’s evaluation of price
4. Describe how marketers analyse
competitive prices
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Copyright John Wiley & Sons 2007
Chapter Objectives
5. Discuss the bases used for setting prices
6. Explain the different types of pricing
strategies
7. Understand how a final, specific price is
determined
Chapter 11
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How important is pricing in the airline
industry?
Dial-Up
Broadband
Darren Wright, National Marketing Manager - Virgin Blue
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Selecting a pricing strategy
Selecting a pricing strategy is one of the
fundamental components in the process
of setting prices
• There is a six-stage process that
marketers can use when setting prices
• These stages are not rigid steps; rather
they are logical guidelines
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Copyright John Wiley & Sons 2007
Stages for establishing prices
Chapter 11
Copyright John Wiley & Sons 2007
Stage 1: The development
of pricing objectives
Pricing objectives are goals that describe
what a firm wants to achieve through pricing
•
•
•
Form the basis for decisions about other
stages of pricing
Must be consistent with the firm’s overall
marketing objectives
Can use one or multiple objectives (which
can be both short-term and long-term)
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Copyright John Wiley & Sons 2007
Stage 1: The development
of pricing objectives (cont’d)
Some of the pricing objectives that
companies might set for themselves are:
– Survival
– Profit
– Return on investment
– Market share
– Cash flow
– Status quo
– Product quality
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Copyright John Wiley & Sons 2007
Stage 2: Assessment of the target
market’s evaluation of price
The importance of price depends on
– Type of product and target market
– purchase situation
Value focus
– Combines a product’s price and quality
attributes, which
– Customers use to differentiate among
competing brands.
– Helps marketers correctly assess the
target market’s evaluation of price
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Copyright John Wiley & Sons 2007
Stage 3: Evaluation of
competitors’ prices
Sources of competitors’ pricing information:
– Comparative shoppers: persons who
systematically collect data on
competitors’ prices
Importance of knowing competitors’ prices:
– Helps determine how important price will
be to customers
– Helps marketers in setting competitive or
appropriate prices for their products
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Copyright John Wiley & Sons 2007
Stage 4: Selection
of a basis for pricing
The 3 major dimensions on which prices
can be based are:
1. Cost-based pricing
2. Demand-based pricing
3. Competition-based pricing
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Copyright John Wiley & Sons 2007
Stage 4: Selection
of a basis for pricing (cont.)
The selection of the basis for pricing to use
is affected by:
– Type of product
– Market structure of the industry
– Brand’s market share relative to
competing brands
– Customer characteristics
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Copyright John Wiley & Sons 2007
What is the basis for pricing being used by
Aussie Home Loans?
Dial-Up
Broadband
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Stage 4 review question …
Has Aussie Home Loans used a price
skimming or penetration strategy?
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Copyright John Wiley & Sons 2007
Stage 4: Selection
of a basis for pricing (cont’d)
– Cost-based pricing
Adding a dollar amount or percentage to
the cost of the product
– Cost-plus pricing
Adding a specified dollar amount or
percentage to the seller’s cost
– Markup pricing
Adding to the cost of a product a
predetermined percentage of that
cost
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Copyright John Wiley & Sons 2007
Stage 4: Selection
of a basis for pricing (cont’d)
Stage 4: Selection
of a basis for pricing (cont’d)
Demand-based pricing
– Customers pay a higher price when
demand for a product is strong, and a
lower price when demand is weak
– Effectiveness depends on marketer’s
ability to estimate demand accurately
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Copyright John Wiley & Sons 2007
Stage 4: Selection
of a basis for pricing (cont’d)
Competition-based pricing
– Pricing is influenced primarily by
competitors’ prices
– Importance increases when competing
products are relatively homogeneous
How do you determine your pricing?
Dial-Up
Broadband
Geoff Rollason- Chief Financial Officer - Story Bridge Adventure Climb
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Stage 5: Selection
of a pricing strategy
A pricing strategy is an approach or a
course of action designed to achieve
pricing and marketing objectives
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Copyright John Wiley & Sons 2007
Common pricing strategies
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Stage 5: Selection
of a pricing strategy (cont’d)
Differential pricing – means charging
different prices to different buyer for the
same quality and quantity of product
• Negotiated pricing
• Secondary-market pricing
• Periodic discounting
• Random discounting
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Copyright John Wiley & Sons 2007
Stage 5: Selection
of a pricing strategy (cont’d)
New-product pricing – setting the base for a
new product is a necessary part of
formulating a marketing strategy
• Price skimming – go high early
• Penetration pricing – go low early
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Copyright John Wiley & Sons 2007
Which new product pricing strategy is
being used by Xbox?
Dial-Up
Broadband
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Stage 5: Selection
of a pricing strategy (cont’d)
Product-line pricing means establishing
and adjusting prices of multiple products
within a product line
• Captive pricing – low main price with high
prices for extras
• Premium pricing – high quality & price
• Bait pricing – pricing to get them in, then
trade up to higher item
• Price lining – various product groups
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Stage 5: Selection
of a pricing strategy (cont’d)
Psychological pricing attempts to influence a
customers perception of price t make a
product’s price more attractive
•
•
•
•
•
•
•
Reference pricing
Bundled pricing
Multiple-unit pricing
Everyday low prices (EDLP)
Odd-even pricing
Customary pricing
Prestige pricing
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Multiple-unit pricing
Copyright John Wiley & Sons 2007
Stage 5: Selection
of a pricing strategy (cont’d)
Professional pricing
• Used by people with great skill or
experience in a particular field.
Promotional pricing
• Price leaders – below usual to attract
• Special-event pricing – link price to time
or event
• Comparison discounting – set at a level
then compare to higher price
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Copyright John Wiley & Sons 2007
Stage 6: Determination
of a specific price
After determining a pricing strategy that
yields a certain price, the price may need
refinement to make it consistent with
pricing practices in the particular market or
industry
• The way pricing is used in the marketing
mix will affect the final price
• Only a recommended retail price can be
quoted to resellers
Chapter 11
Copyright John Wiley & Sons 2007
Chapter 11
Copyright John Wiley & Sons 2007