Download What is Marketing?

Chapter Ten
Pricing Considerations and
Strategies
with Duane Weaver
10-1
Copyright © 2007 Pearson Education Canada
OUTLINE
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Price defined
Best Practices
Decision Factors
Pricing in different markets
Demand and Elasticity
Pricing approaches/strategies and price setting
Initiating and responding to price changes
Ethics in pricing
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Copyright © 2007 Pearson Education Canada
What is a Price?
• Narrow definition.
– Price is the amount of money charged for a
product or service.
• Broad definition.
– Price is the sum of all the values that
consumers exchange for the benefits of
having or using the product or service.
• Dynamic pricing.
– Charging different prices depending on
individual customers and situations.
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Pricing Best Practices
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Develop a one percent pricing mentality.
Consistently deliver more value.
Price strategically, not opportunistically.
Know your competition.
Make pricing a process .
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Pricing Decision Factors
Internal Factors
External Factors
• Marketing objectives. • Nature of the market.
• Demand.
• Marketing mix.
• Competitor.
• Costs
• Economic state.
– Fixed
• Reseller needs.
– Variable
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Government
actions.
• Organization style.
• Social concerns.
• Target market.
• Positioning
objectives.
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Pricing in Different Markets
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Pure competition.
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Many buyers and sellers where each has little effect on the
going market price.
Monopolistic competition.
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Many buyers and sellers who trade over a range of prices.
Oligopolistic competition.
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Few sellers and sensitive to each other’s pricing/marketing
strategies.
Pure monopoly.
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Market consists of a single seller.
Copyright © 2007 Pearson Education Canada
Demand and Elasticity
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Demand.
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The relationship between price changes and the
number of units sold.
Elasticity.
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A way of measuring how sensitive the market is to
price changes.
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Inelastic – minimal change in demand
as price increases.
Elastic – significant drop in demand as price increases.
See Figure 10.2 on page 383
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Price Setting Considerations
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Product costs.
– Price floor – no profits below this price.
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Competitors’ prices and other internal
and external factors.
Consumer perceptions of value.
– Price ceiling – no demand above this
price.
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General Pricing Approaches
• Cost-based approach.
– Cost-plus pricing.
– Break-even analysis.
– Target profit pricing.
• Value-based approach.
– Consumer perceptions of value.
• Competition-based approach.
– What competitors are charging
(going rate vs. sealed bid).
10-9
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Pricing New Products
• Skimming pricing.
– High price to reap maximum profit from early
adopter segments.
– Can encourage competition.
– Products must be unique and hard to copy.
• Penetration pricing.
– Low price to gain maximum market share.
– May discourage competition.
– Used when the product is easily copied.
10-10
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Product Mix Pricing Strategies
• Product line – pricing levels to deliver value
to different segments.
• Optional products – separate options
available for the main product.
• Captive products – needed to make main
product usable.
• By-products – created from the
manufacture of the main product.
• Product bundles – combinations.
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Product Line Pricing
• Involves setting price steps between
various products in a product line based
on:
– Cost differences between products.
– Customer evaluations of different features.
– Competitors’ prices.
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Optional/Captive Product Pricing
• Optional-product.
– Pricing optional or accessory products sold
with the main product (e.g. ice maker with
the refrigerator).
• Product bundle pricing (packaging or
bundling)
– Combining several products and offering the
bundle at a reduced price (e.g. computer
with software and Internet access).
10-13
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Price-Adjustment Strategies
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Discount and allowance pricing
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Segmented pricing
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create interest…loss leader…
Geographical pricing
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quality judgment
Promotional pricing
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movie theatre
Psychological pricing
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give away profit
FOB origin, uniform (averaged freight), zone (zone averaging),
basing-point (freight from base), freight-absorption (seller takes
hit)
International pricing
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10-14
Economics, competition, laws, infrastructure (wholesale/retail),
costs, internet
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Initiating Price Changes
• Price Cuts
– Excess capacity.
– Falling market
share.
– Dominate market
through lower
costs.
10-15
• Price Increases
– Cost inflation.
– Over-demand.
Cannot supply all
customers’ needs.
Copyright © 2007 Pearson Education Canada
Responding to Competitor
Price Changes
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What can you do when a competitor lowers
prices? How can you respond?
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Please get together in your groups, think of a local
business you know and come up with three ideas of
what you could do if you were the Product Manager
for the business and your main competitor dropped
their prices on one of your main products?
1. Name the business
2. Define the main product
3. Identify the three options available to you and explain
why you think they would work and why they might not?
10-16
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Responding to Competitor
Price Changes
• What can you do when a competitor
lowers prices? How can you respond?
– Reduce price to match the competitors’ price.
– Maintain price but increase the perceived value of
the offer.
– Improve quality and raise price.
– Hold price and introduce a new brand at a higher
price.
– Hold price and introduce a new brand at a lower price
(fighting brand).
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Pricing Ethics - Regulation
• Competitors
– Price-fixing (collusion)
– Predatory pricing (sell at loss-eliminate
competition)
• Manufacturer and retailer.
– Retail price maintenance (same price to same
level of trade)
– Discriminatory pricing (allowed if prove costs
different)
• Manufacturer/retailer and consumer.
– Deceptive pricing (bait and switch up – stock out)
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Thanks
Go forth and price for success!
Beat the waves of competition to the
shore!
10-19
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