14
Developing Pricing
Strategies and Programs
Marketing Management, 13th ed
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?
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Synonyms for Price
• Rent • Special assessment
• Tuition • Bribe
• Fee • Dues
• Fare • Salary
• Rate • Commission
• Toll • Wage
• Premium • Tax
• Honorarium
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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
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Consumer Psychology
and Pricing
• Reference prices
• Price-quality inferences
• Price endings
• Price cues
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Table 14.1 Possible Consumer
Reference Prices
• “Fair price” • Lower-bound price
• Typical price • Competitor prices
• Last price paid • Expected future
• Upper-bound price price
• Usual discounted
price
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Table 14.2 Consumer Perceptions vs.
Reality for Cars
Overvalued Brands Undervalued Brands
• Land Rover • Mercury
• Kia • Infiniti
• Volkswagen • Buick
• Volvo • Lincoln
• Mercedes • Chrysler
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Price Cues
• “Left to right” pricing ($299 vs. $300)
• Odd number discount perceptions
• Even number value perceptions
• Ending prices with 0 or 5
• “Sale” written next to price
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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
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Steps in Setting Price
• Select the price objective
• Determine demand
• Estimate costs
• Analyze competitor price mix
• Select pricing method
• Select final price
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Step 1: Selecting the Pricing Objective
• Survival
• Maximum current profit
• Maximum market share
• Maximum market skimming
• Product-quality leadership
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Step 2: Determining Demand
• Price sensitivity
• Estimate demand curves
• Price elasticity of demand
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Table 14.3 Factors Leading to Less
Price Sensitivity
• The product is more distinctive
• Buyers are less aware of substitutes
• Buyers cannot easily compare the quality of substitutes
• The expenditure is a smaller part of buyer’s total income
• The expenditure is small compared to the total cost of
the end product
• Part of the cost is paid by another party
• The product is used with previously purchased assets
• The product is assumed to have high quality and
prestige
• Buyers cannot store the product
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Step 3: Estimating Costs
• Types of costs
• Accumulated production
• Activity-based cost accounting
• Target costing
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Cost Terms and Production
• Fixed costs
• Variable costs
• Total costs
• Average cost
• Cost at different levels of production
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Step 5: Selecting a Pricing Method
• Markup pricing
• Target-return pricing
• Perceived-value pricing
• Value pricing
• Going-rate pricing
• Auction-type pricing
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Auction-Type Pricing
• English auctions
• Dutch auctions
• Sealed-bid auctions
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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
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Price-Adaptation Strategies
• Geographical pricing
• Discounts/allowances
• Promotional pricing
• Differentiated pricing
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Price-Adaptation Strategies
Countertrade Discounts/ Allowances
• Barter • Cash discount
• Compensation deal • Quantity discount
• Buyback • Functional discount
arrangement • Seasonal discount
• Offset • Allowance
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Promotional Pricing Tactics
• Loss-leader pricing
• Special-event pricing
• Cash rebates
• Low-interest financing
• Longer payment terms
• Warranties and service contracts
• Psychological discounting
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Differentiated Pricing
• Customer-segment pricing
• Product-form pricing
• Image pricing
• Channel pricing
• Location pricing
• Time pricing
• Yield pricing
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Increasing Prices
• Delayed quotation pricing
• Escalator clauses
• Unbundling
• Reduction of discounts
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Brand Leader Responses to
Competitive Price Cuts
• Maintain price
• Maintain price and add value
• Reduce price
• Increase price and improve quality
• Launch a low-price fighter line
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