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BUS2010F - Lecture 14 (Tactics 4 - Price cont)

The document discusses various pricing tactics in marketing, including discount pricing, promotional pricing, and psychological pricing. It highlights the importance of understanding consumer behavior and market dynamics when setting prices, as well as the implications of different pricing strategies like segmented pricing and predatory pricing. Additionally, it outlines steps for setting prices effectively, considering factors such as target market evaluation, demand elasticity, and competitor pricing.

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12 views

BUS2010F - Lecture 14 (Tactics 4 - Price cont)

The document discusses various pricing tactics in marketing, including discount pricing, promotional pricing, and psychological pricing. It highlights the importance of understanding consumer behavior and market dynamics when setting prices, as well as the implications of different pricing strategies like segmented pricing and predatory pricing. Additionally, it outlines steps for setting prices effectively, considering factors such as target market evaluation, demand elasticity, and competitor pricing.

Uploaded by

khmaponya
Copyright
© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
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Download as PDF, TXT or read online on Scribd
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Marketing I

BUS2010F

Dr James Lappeman

Lecture 13
13 March 2024
Tactics 4 – Price cont.
Text: Lappeman et al., (2021) Ch14, p221-235
Email: [email protected]
2024
Tactics

NOW
Discount pricing:
Discount: A straight reduction in price on
purchases during a stated period of time

Reducing price to reward customer responses

• Cash discount
• Quantity (Makro / PnP / WW)
• Functional (trade discount)
• Seasonal (early ordering)
• Trade-in allowance
Promotional Pricing

Temporarily pricing products below


the list price, sometimes even below
cost in order to stimulate sales.

Reducing price to boost sales


What is the problem with dropping price to
boost sales temporarily?
“Price promotions are the brand equivalent of
heroin: easy to get into, but hard to get out of.
Once the brand and its customers are addicted to
the short-term high of a price cut, it is hard to
wean them away to real brand building…but
continue and the brand dies.”

Who do you know that hardly ever discounts?


Superficial discounting
“WAS R500 now only R399..”

Especially where consumer is


ignorant of what a fair price is
e.g. Persian carpets?
Why do
companies do
this?

And does it
work?
Psychological Pricing

An approach that considers the psychology of


prices; using price to ‘say something’ about
the product.

Reference points
• Do we really know what a good price is?
Good-value pricing

Everyday low pricing (EDLP)


• Charging a constant, everyday low price with
few or no temporary price discounts.

High-low pricing
• Charging higher prices on an everyday basis,
but running frequent promotions to
temporarily lower prices on selected items.
Value-added pricing
Attaching value-added features and services to
differentiate a firm’s offers and to support
charging higher prices.

We don’t cut prices – we attach value-added


features to differentiate ourselves.
Price-adjustment strategies
Where have you seen the same product /
service sold for different prices?
Segmented Pricing

Selling a product/service at two or more prices,


where the difference in prices is not based on
differences in costs.

Also called “dynamic” or “discriminatory”


pricing
We mostly accept that the person
sitting next to you paid a different price
Customer-segment pricing
– - Student /pensioner discounts,
– - Gender / age discrimination in insurance
– - International vs local price (hotel?)

Location pricing
- Coke at: bar/shop/sports arena/service station
- Stadium tickets (view)

Time pricing
- Off peak mins
- Early bird (advanced booking)
- Special events? (birthday)
- Seasonal (off-peak)
Being able to segment according to price is a benefit
for marketers wanting to maximize revenue… BUT
certain conditions are usually required
üMarket must be able to be segmented.
üMembers of segments buying lower prices shouldn’t be able to
resell them.
üCompetitors shouldn’t be able to undercut the firm in the
segment being charged more.
üThe more “obvious” it is, the more possible damage (that’s why
it is good for digital transactions)
• Uber offers highly dynamic pricing
• Prices change according to:
Uber and – Car service chosen (SUV, UberX, Black Car)
‘Price Gouging’ – Time of service (peak, holidays, extreme
weather)
• Allows Uber to ‘gouge’ the market share
(surge)
• Maximise business at all hours
Geographic & International Pricing

Do we maintain one price worldwide


or change the price in different
countries?

Is it feasible to have the same price


everywhere?
Just a few more!!
• Method of pricing where the seller offers at least
three products, and where two of them have a
similar or equal price.
Decoy pricing
• The two products with the similar prices should
be the most expensive ones, and one of the two
should be less attractive than the other.

• This strategy will make people compare the


options with similar prices, and as a result sales
of the more attractive high-priced item will
increase.
• A loss leader or leader is a product sold at a low price (i.e. at
Loss cost or below cost) to stimulate other profitable sales. This
would help the companies to expand its market share as a
leader whole.

• Loss leader strategy is commonly used by retailers in order to


lead the customers into buying products with higher marked-
up prices to produce an increase in profits rather than
purchasing the leader product which is sold at a lower cost.

• Supermarkets and restaurants are an excellent example of


retail firms that apply the strategy of loss leader.
• Predatory pricing, also known as aggressive pricing (also
known as "undercutting"), intended to drive out competitors
from a market. It is illegal in some countries.

• Firms that tend to get involved with the strategy of predatory


Predatory pricing often have the goal to place restrictions for other new
businesses from entering the market.
pricing
• Due to this strategy, in the short-term consumers will be
benefited and satisfied. However, firms will not be benefited
in the long term as this same strategy will be continued to be
used by other businesses against each other, because of the
increase in competition within the market causing major
losses.
Dumping is a term used in the context of international
trade. It's when a country or company exports a product
at a price that is lower in the foreign importing market
than the price in the exporter's domestic market.

Dumping
Finally…

Price changes
Price increases? Price cuts?

üProduct is “hot” üNew models will be available


üCompany greed üModels are not selling well
üQuality issues
What happens when I change my
price?
Sometimes firms are forced to reduce prices
- Excess capacity.
- Falling demand in the face of increased competition.
- Maybe a strategy à market penetration

Sometimes firms are forced to increase prices


- If successful, it can greatly increase profits.
- Cost inflation
- Over demand

Is it important to tell consumers why I’m raising my prices?


How do consumers & competitors react to price changes?

Price changes are not always interpreted in a straightforward manner.

– Your brand of milk usually costs R9.99, now it’s on sale for R4.99
(what is the consumer thinking?)
Competitors are most likely to react when there are
a small number firms involved, when the product is
standardized and when buyers are well informed.

• Why did the competitor change the price?


• Is the price cut permanent or temporary?
• How long can they sustain the drop?
• What is the effect on market share and profits?
• Will other competitors respond?
• Reduce price to match competition

• Maintain price but raise the


perceived value (through
What to do if your communications)
competitor drops
their price? • Improve quality and increase price

• Launch a lower-price “fighting”


brand
Price Elasticity

A PRICE INELASTIC MARKET occurs when customers


purchase the same quantity despite a large price increase
• e.g. A cancer drug, Louis Vuitton handbags, football tickets for the final

A PRICE ELASTIC market occurs when a price change


causes a correspondingly greater change in units sold
• e.g. Air tickets
Veblen goods A Veblen good is a good for which demand increases
as the price increases due to its exclusive nature and
appeal as a status symbol.

This runs counter to the prevailing circumstance of


demand falling as prices rise. Thus, a Veblen good has
an upward-sloping demand curve rather than the
typical downward-sloping curve.

Giffen goods are essential goods, such as rice,


potatoes and wheat. Demand stays high when prices
increase because there is no ready substitute for
them.
Steps in setting price

1. Select Pricing objectives


– Survival fancy footwork
– Profit e.g. established margins
– ROI profit-related, but varies across
products or brands
– Market Share benchmark, status quo
– Cash Flow usually = high prices
2. Identify target market’s evaluation of price and
ability to purchase
(e.g. Justin Bieber ticket prices)

3. Determine Demand
Is the market price elastic/inelastic?

4. Analyse competitor’s prices


remember positioning

5. Select pricing policy


Thank you
@JamesLappeman

James Lappeman

Email: [email protected]
BUS2010F

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