Welcome to Strategic Marketing

UN211988

Semester 2, 2017

[email protected]
Office – Rm 208.

www.perth.uhi.ac.uk
Perth College is a registered Scottish charity, number SC021209.
Learning Objectives

• To understand pricing strategies

• To understand the nature of pricing decisions
• To understand the factors affecting pricing decisions
Thoughts on ‘Price
Thoughts on ‘Price

• Price is the amount of money charged for a

product or service
• Price has many names—rent, tuition, fee, fare,
tariff, rate, interest, premium and so on …
• Is a main factor affecting consumer choice
• Only element in the marketing mix that produces
revenue—all others are costs (investments)
• Is the ‘easiest’ element of the marketing mix to
change and use in tactical ploys

Pricing Strategies/
Price Strategies
General Pricing Approaches
• Cost-based pricing
– Cost-based pricing is product-driven

• Value-based pricing
– Value-based pricing is customer-driven

• Competition-based pricing
Cost-Based Pricing -

– Adding a standard markup to cost

– Ignores demand and competition

– Popular pricing technique because:

• Sellers more certain about cost than

demand
• Simplifies pricing
• Competition is minimized
• More fair to both buyers and sellers
 Value-Based Pricing

• Uses buyers’ perceptions of value

rather than seller’s costs to set price.

• Measuring perceived value can be

difficult.
$700 1 night

• Consumer attitudes toward price and

quality have shifted during the last
decade.

– Introduction of less expensive versions

of established brands has become
common.
Value-Based Pricing
Competition-Based Pricing

• Pricing at the same level as, above, or below the

competition
New-Product Pricing Strategies

• Two broad range

strategies:

– Market-Skimming Pricing

– Market-Penetration
Pricing

– Note: Positioning Strategies

New-Product Pricing Strategies -
Market-Skimming

• Setting a high price for • Use under these conditions:

a new product to – Product’s quality and image
“skim” maximum must support its higher
revenues from the price.
target market. – Costs of producing the
product in small numbers
• Results in fewer, but
should not cancel the
more profitable sales.
advantage of higher prices.
• E.g. iPhone – Competitors shouldn’t be
able to enter market easily.
New-Product Pricing Strategies
Market-Penetration

• Setting a low initial price for a • Use under these

new product in order to conditions:
“penetrate” the market quickly – Price sensitive market.
and deeply.
– Production/distribution
• Attract a large number of costs must fall as sales
volume increases.
buyers and win a larger
market share.
– Must keep out competition
& maintain its low price
• E.g. position or benefits may
only be temporary.
Skimming vs. Penetration Pricing Strategies
Marketing Plan Focus

• Which, if any, of these

pricing strategies would be
suitable for your chosen
company and why?
Product Mix-Pricing Strategies

• Product Line Pricing

• Optional-Product Pricing

• Captive-Product Pricing

• By-Product Pricing

• Product Bundle Pricing

Product Mix-Pricing Strategies
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

Sharp R-230KK Sharp R-308JS Sharp R-420JK

$89 $99 $109
Product Mix-Pricing Strategies
Optional-Product Pricing

• Pricing optional or accessory products sold with the main

product.
£ £ £
11,945 15,445 22,935

Ford Focus 3 Door Studio Ford Focus 3 Door Zetec Ford Focus 3 Door Titanium
1.6 Duratec 100 PS 1.6 Duratec 100 PS 2.0 TDCi 136 PS, Metallic Colour
5 Speed Manual 4 Speed Automatic 6 Speed Manual
Weather Control Weather Control, Cruise Control,
Smoker’s Pack, Pwer Converter,
Electronic windows
Sunroof, HiFi CD system,
Radio Adaptive Lighting System, Tow
Bar, Sports Pack
Product Mix-Pricing Strategies
Captive-Product Pricing

• Pricing products that must be used with the main product

(e.g., replacement blades for Gillette razors).

HP Officejet 5610 All-in-one Mach3 Turbo Mach3

Printer $100 $10 Blades $11
HP 22 Tri-color Cartridge
$50
Product Mix-Pricing Strategies
By-product Pricing

• Pricing low-value by-

products to get rid of
them and make the main
product’s price more
competitive.

• E.g. Sawdust - Paper

Company
Product Mix-Pricing Strategies
Product bundle Pricing

• Combining several
products and offering the
bundle at a reduced
price.

• E.g. Fast Food deals;

Travel Packages.
Combo 1
• 2 original recipe chicken
• 1 French Fries (Regular)
• 1 Pepsi (Regular)
• Price: 69.000 đ
Class Activity
• Which of the 5 product-mix strategies apply in the
following examples?
– Unilever sell the residue or sludge from its Walls ice-cream
manufacturing process to farmers for animal feed?

– Samsung sells its latest 32 inch colour TV set with 6 additional

speakers

– Nintendo video game system only plays Nintendo games

– Butlins Resorts offer a weekend package including 2 night stay,

breakfast, valet parking, & 2 tickets for a local cultural show
Marketing Plan Focus

• Which product mix strategies could work for your

marketing plan product? Consider:

– Product line pricing

– Optional product pricing
– Captive product pricing
– By product pricing
– Product bundling pricing
Price-Adjustment Strategies

• Discount and Allowance

Pricing

• Segmented Pricing

• Psychological Pricing

• Promotional Pricing
Discounts and Allowances

Discounts Allowances

Cash Trade-In

Quantity Promotional

Functional

Seasonal
Segmented Pricing

• Selling a product or service at two or more prices, where the

difference in prices is not based on differences in costs.
• Also called revenue or yield management
• Certain conditions must exist for segmented pricing to be
effective

1. Customer-segment VIP seat £15

2. Product-form Regular seat £7.50

3. Location pricing Weekday £6.50

4. Time pricing Students £5.00

Wednesday £5.75
Psychological Pricing

• Considers the psychology

of prices and not simply
the economics.

• Consumers usually
perceive higher-priced
products as having higher
quality.

• Consumers use price less

when they can judge
quality of a product.
Promotional Pricing

• Promotional pricing is
when prices are
temporarily priced below
list price or cost to
increase demand.
– Loss leaders
– Special event pricing
– Cash rebates
– Low interest financing
– Longer warranty
– Free maintenance
 The total cost of ownership (customer perspective)

What we
Purchase see
price

Transaction Maintenance
cost cost

Inventory Costs over lifetime

cost of product / service
Technical
support contract
Operating Training
cost
cost cost Disposal
cost

Source: Adapted with permission from Christopher (1997, p49)

Nine price/quality strategies
Selecting an overall positioning strategy

Value
Proposition
Factors affecting price setting
Company
Costs
Corporate objectives
Marketing plans
Product range
Competitors Customers
Offerings Value perceptions
Pricing/costs Perceptions of product/firm
Competitive structure Ability to pay

Price
Setting

Channels/ Context/
Collaborators Environment
Costs Economy
Capabilities Regulations
Locus of power Currency
 Steps to effective pricing
• Determine the value the • Measure and monitor the net
customer places on the prices obtained in the
product. market—know the effects of
price changes, discounts,
• Assess the different value etc.
by different market
segments. • Assess customers’
emotional responses to
• Determine price sensitivity. prices.
• Identify the best pricing • Determine whether the
structure. market segment or key
• customer provides sufficient
Take account of returns in relation to costs to
competitors’ likely serve.
reactions.