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
competitors price challenge?
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 Gillette Commands a
Price Premium

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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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 Tiffanys
Price-Quality Relationship

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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

Estimating
Demand Curves

Price Elasticity
of Demand
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 Figure 14.2 Inelastic
and Elastic 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 buyers 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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 Figure 14.4 Cost per Unit as a
Function of Accumulated Production

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 9 Lives Uses Target Costing

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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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 Figure 14.6 Break-Even Chart

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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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 Table 14.6 Profits Before and After a
Price Increase

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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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 Marketing Debate

Is the right price a fair price?

Take a position:
1. Prices should reflect the value that
consumers are willing to pay.
or
2. Prices should primarily just reflect the cost
involved in making a product.

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 Marketing Discussion

Think of all the pricing methods

described in the chapter.
As a consumer, which pricing method
do you personally prefer to deal with?
Why?

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