CHAPTER 14: DEVELOPING PRICING STRATERGY AND PROGRAM.

INTRODUCTION:
Price produces revenue; other elements produce cost. Price is the easiest element of marketing. Price communicates to the market the companys intended value positioning of its product or brand To reap profits products should beo Well designed o Well marketed

(eg. Gillette- corporate owner P&G: Excellent in innovations like the safety razor by King C. Gillette 1901; latest six blade fusion Jan 2006. Spend $1.2mil on research and development. Enjoys 70% of the market leadership worldwide. All this adds on to sustained profitability to corporate owner.)

 Important for holistic marketers to take into accounto Company o Customers o Competition o Marketing Pricing decisions must be consistent witho Firms marketing strategy o Target markets o Brand positioning

UNDERTSANDING PRICING:

PRICE major determinant of the buyers choice. Price comes in many forms and performs many functions. Rent, tuition, fares, etc are what consumers pay for some goods and services. Non price factors also hold importance. Competitive pressure give rise to heavy discount and sales promotion.

 CHANGING PRICING ENVIRONMENT: Significant changes in price practices in recent years. Low price trends makes consumers buy expensive products with the help of engaging marketing campaigns. (eg. LG acquired aspirational position by introducing a wide range of differentiated products.) Internet is partially reversing the fixed pricing trend. Buyers can: o Get instant price comparisons from thousands of renders. o Name their price and have it met. o Get products free. Sellers can: o Monitor customer behavior and tailors offers to individuals. o Give certain customers access to special prices. o Negotiate price in outline auction and exchanges.

 HOEW COMPANIES

PRICE:

In small companies- pricing is set by boss. In big companies- pricing handled by divisions and product managers. In industries companies set pricing department. o This department reports to- marketing, financial or top management department. Others who influence on priceo Sales managers o Production managers o Finance managers o Accountants Its important to set price independently for the rest of the marketing mix. (eg. GE is responding by making pricing one of its top three initiatives and instituting a wholesale set of changes: A matrix organization dedicated to pricing has been created.

 The CMO, reporting to the CEO, leads the pricing initiatives. Dedicated pricing managers focus on product pricing, and in each business unit there is generally a VP or Director of pricing reporting to the head of marketing. Pricing has been added to the GE executive education curriculum and is a mandatory initiative for the Commercial Excellence Councils of Top 100 GE executives. A Global Pricing Council, made up of pricing leaders from each GE business unit, is looking for best pricing practices across GE and seeding them throughout the organization. Within large business units, specialized Industry Pricing Councils cater to unique industry needs.) Guidelines fir a successful Freemium Strategy: o Have a product or service that truly stands out. o Know your up-selling plan from the beginning.

o Once youve decided that a product will be given away for free, dont change your mind. o Access to your product should be just one click away. o Make sure that the major bugs have been exterminated. o Harness the collective intelligence of your users. o Keep improving the product to give users more reasons to stick with it. o Identify a range of revenue sources, o Timing is everything.

CONSUMER PSYCOLOGY AND PRICING: Consumers are price takers and accept prices
at face value or as given.

Marketers recognize:
o Consumers process price information. o Interpreting price in terms of their knowledge.

o Formal communication (ads, sales calls, etc) o Informal communication (friends, family, etc) o Point-of-purchase or online resources and other factors. Purchase decision based on how consumers perceive price and what they consider the current actual price to be not the marketers stated price. (eg. Armani , Gap, H&M- Three clothing brands: Three of them produce black t-shirts with a wide difference in price. Though Armani produces t-shirt which is not made up of cotton yet the high price focusing on the premium class of people and defining it as a luxury brand with limited edition. Other two brands produce cotton t-shirts and sold at a lower cost indicating that the target audience is the middle class.)

3 KEY TOPICS:

REFERENCE PRICES:

Research shows that consumers have fairly good knowledge of range of price. Few can recall specific price of a product. When examining product consumers often refer price. Consumer refer to regular retail price for reference. Possible consumer reference prices: o Fair price o Typical price o Last price paid o Upper-bound price o Lower-bound price o Expected future price o Usual discount price Sellers manipulate the reference price. (eg. Consumer electronics Product price differs among retailers and items like electronics, consumers are largest.

 Consumers are made to believe that they are getting 20% or 30% or 40% off. However a reference price makes people see they are getting something of value for less than top price.) With frames of reference, perceived price can vary from stated price. unpleasant surprises can have a greater impact purchase expectation than pleasant surprise. Consumer expectation important role in price response. Clever marketers eg. Ebay, can try to frame the price to signal the best value possible.

PRICE QUALITY INTERFERENCE: Consumer use price as an indicator of quality. Some brands adopt exclusivity and scarcity as a
means to signify uniqueness and justify premium pricing.

 For the luxury goods customer who desires

uniqueness, demand may actually increase with higher price as they may feel that few customers will be able to afford to purchase it.

(eg. Tiffany & Co.:

Known for diamonds and luxury. Link between price and quality made tiffany special. Tried to brand its appeal to the younger generation with silver products, yet they must safeguard the premium image. Expanded to new cities and shopping malls. However with the new addiction of a new generation of people purchasing Tiffany products, customers feel that Tiffany is not special, anymore. Yet the brand continues to perform well.)

PRICE CUES: Customer perception of price is affected by all pricing strategy.

 sellers feel- price should end in an odd no. like $299,$399, etc Customer process price in a left to right manner. No. 9 conveys the notion of a discount or bargain. If companies want a higher price image, it should avoid odd ending tactics. Total category of sales is higher when few category has sale. Limited availability (eg 3days only) also can increase sales among consumers actively shopping for a product.

MARKETING INSIGHTS:

 Sampling has been successful marketing tactics for years. Myspace online community, skype community, etc achieved some success with a freemium strategy. Freemium strategy Is also available off line as well. Eg RYANAIR AIR CARRIER- has achieved because of its revolutionary business model. Ryanairs seats are free, passengers pay only the taxes and fees. Passengers pay extra for everything right from snacks, baggage to water. Flight attendants sell a variety of merchandise. Features like- seats dont recline, window shades and seat back pockets have been removed, poster of companies like jaguar, Vodafone on the air craft, etc 98% tickets are sold online along with other offer which the web sites provides. Only Boeing jets are flown to reduce maintenance and flight crew buy their own uniforms.

 Other airlines are modifying themselves, keeping in mind the new strategy adopted by Michael OLeary ( founder of Ryanair )