The Marketing Mix

Price Strategies

The Importance of Pricing

Pricing is one of the most vital decisions made by management Price too high and you lose the sale Price too low and you can’t make money

Two fundamental ways to grow revenue raise your price increase the quantity you sell

Price is the easiest of all marketing variables to influence but among the most complex decisions to make price changes may be implemented immediately

Conceptual Orientation to Pricing

Initialpricing

discretionCorporate objectives andregulatory constraints

Competitive factorsFinal

pricingdiscretion

(Price ceiling)

Demand factors (Value to buyers)

(Price floor)

Direct variable costs

Nagle 1999

Nine Price-Quality Strategies

Setting the Price

Setting the Price

Pricing Procedure

Select pricing objective Determine demand Estimate costs Analyze competition Select pricing method Select final price

Survival Maximize current profits Maximize market share

Penetration strategy Market skimming

Skimming strategy Product quality leaders Partial cost recovery

Setting the Price

Pricing Procedure

Select pricing objective Determine demand Estimate costs Analyze competition Select pricing method Select final price

Understand factors that affect price sensitivity

Estimate demand curves

Understand price elasticity of demand Elasticity Inelasticty

Price Sensitivity

Situations That Increase Price Sensitivity Availability of product substitutes Higher total expenditure Noticeable differences Easy price comparison

Situations That Decrease Price Sensitivity Real or perceived necessities Lack of product substitutes Complementary products Product differentiation Perceived product benefits Situational influences

Price Elasticity of Demand

Setting the Price

Pricing Procedure

Select pricing objective Determine demand Estimate costs Analyze competition Select pricing method Select final price

Types of costs and levels of production must be considered

Accumulated production leads to cost reduction via the experience curve

Differentiated marketing offers create different cost levels

Setting the Price

Pricing Procedure

Select pricing objective Determine demand Estimate costs Analyze competition Select pricing method Select final price

Select method: Markup pricing Target-return pricing Perceived-value

pricing Value pricing

EDLP, Hi-Lo Going-rate pricing Auction-type pricing Group pricing

Setting the Price

Pricing Procedure

Select pricing objective Determine demand Estimate costs Analyze competition Select pricing method Select final price

Requires consideration of additional factors: Psychological pricing Gain-and-risk-sharing

pricing Influence of other marketing

mix variables Company pricing policies Impact of price on other

parties

Trade-in Allowances

Promotional Allowances

Adapting the Price

Price Discounts and Allowances

Quantity Discounts

Seasonal Discounts

Cash Discounts

Functional Discounts

Adapting the Price

Longer Payment Terms

Loss-Leader Pricing

Low Interest Financing

Warranties and Service Contracts

PsychologicalDiscounting

CashRebates

Special Event Pricing

Promotional Promotional Pricing Pricing TacticsTactics

Adapting the Price

Discriminatory Pricing Tactics

Customer Segment PricingCustomer Segment Pricing

Product-Form PricingProduct-Form Pricing

Location PricingLocation Pricing

Channel PricingChannel Pricing

Image PricingImage Pricing

Time PricingTime Pricing

Adapting the Price

Price discrimination works when: Market segments show different intensities of

demand Consumers in lower-price segments can not

resell to higher-price segments Competitors can not undersell the firm in higher-

price segments Cost of segmenting and policing the market

does not exceed extra revenue

Adapting the Price

Product-Mix Pricing Tactics

Optional-Feature PricingOptional-Feature Pricing

Captive-Product PricingCaptive-Product Pricing

Product-Bundle PricingProduct-Bundle Pricing

Product-Line PricingProduct-Line Pricing

By-Product PricingBy-Product Pricing

Two-Part PricingTwo-Part Pricing

Legal and Ethical Issues in Pricing

Price Discrimination Price Fixing Predatory Pricing Deceptive Pricing