Small Business

Marketing:
Product and
Pricing Strategies

Chapter 9

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 Pricing
 Price is central to how much you can make
on each sale
 It conveys a sense about the quality of your
product
 Optimum price
 refers to the highest price that would produce
your desired level of sales (or revenues) in your
target market.

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manner. This document may not be copied, scanned, duplicated, forwarded, distributed, or posted on a website, in whole or part.
 Key Factors for Determining
Optimum Price

 Demand for the product or service

 Value delivered to the customer
 Prices set by competing firms
 Your business strategy and product placement

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manner. This document may not be copied, scanned, duplicated, forwarded, distributed, or posted on a website, in whole or part.
 The Fundamentals of Pricing:
Margin Pricing and Elasticity
 Markup pricing
 A price-setting
method where an
amount is added to
the cost of a
product to set the
retail price and
provide a profit.

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manner. This document may not be copied, scanned, duplicated, forwarded, distributed, or posted on a website, in whole or part.
 The Fundamentals of Pricing:
Margin Pricing and Elasticity
 Margin  Markup
 The amount of  The amount an
profit, usually entrepreneur adds
stated as a to costs to provide a
percentage of the profit
total price.

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manner. This document may not be copied, scanned, duplicated, forwarded, distributed, or posted on a website, in whole or part.
 Computing Margin and Markup
Exhibit 9.2

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manner. This document may not be copied, scanned, duplicated, forwarded, distributed, or posted on a website, in whole or part.
 The Fundamentals of Pricing:
Margin Pricing and Elasticity

 Elasticity
 From economics, the idea that the market’s
demand for a product or service is sensitive to
changes in its price.

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manner. This document may not be copied, scanned, duplicated, forwarded, distributed, or posted on a website, in whole or part.
 Price Elasticity
 Inelastic product
 product for which there are few substitutes and
for which a change in price makes very little
difference in quantity purchased
 Elastic product
 product for which there are any number of
substitutes and for which a change in price
makes a difference in quantity purchased

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manner. This document may not be copied, scanned, duplicated, forwarded, distributed, or posted on a website, in whole or part.
 Pricing Elasticity

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manner. This document may not be copied, scanned, duplicated, forwarded, distributed, or posted on a website, in whole or part.
 The Fundamentals of Pricing: Value

 The value delivered to the customer is second

in order of importance to the pricing decision
 In addition to demand and value provided,
you must consider the prices set by your
competition

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manner. This document may not be copied, scanned, duplicated, forwarded, distributed, or posted on a website, in whole or part.
 The Fundamentals of Pricing—Contextual
Factors
 Decide what is the right price
 Examine existing market prices for similar
products and services
 Consider your business costs

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manner. This document may not be copied, scanned, duplicated, forwarded, distributed, or posted on a website, in whole or part.
 The Fundamentals of Pricing—Contextual
Factors

Your Company Objectives

Marketing Strategy

Channels of Distribution

Competition

Legal and Regulatory Issues

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manner. This document may not be copied, scanned, duplicated, forwarded, distributed, or posted on a website, in whole or part.
 Pricing Psychology: How Customers Perceive
Prices
 Internal reference price
 a consumer’s mental image of what a product’s
price should be
 External reference price
 an estimation of what a price should be based on
advice, advertisements, or comparison shopping

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manner. This document may not be copied, scanned, duplicated, forwarded, distributed, or posted on a website, in whole or part.
 Pricing Strategies

 Skimming
 Setting a price at the highest level the market will
bear, usually because there is no competition at
the time.
 Prestige or premium pricing
 Setting a price above that of the competition so
as to indicate a higher quality or that a product is
a status symbol.

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manner. This document may not be copied, scanned, duplicated, forwarded, distributed, or posted on a website, in whole or part.
 Pricing Strategies

 Odd-even pricing
 Setting a price that ends in the number 5, 7, or 9.
 99.97, 998.99
 Partitioned pricing
 Setting the price for a base item and then
charging extra for each additional component.

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manner. This document may not be copied, scanned, duplicated, forwarded, distributed, or posted on a website, in whole or part.
 Pricing Strategies

 Captive pricing
 Setting the price for an item relatively low and
then charging much higher prices for the
expendables it uses.
 Price lining
 The practice of setting (usually) three price
points: good quality, better quality, best quality.

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manner. This document may not be copied, scanned, duplicated, forwarded, distributed, or posted on a website, in whole or part.
 Price-Lowering Techniques

 Periodic or random discounting

 Sales conducted at either predictable or non-
predictable intervals.
 Off-peak pricing
 Charging lower prices at certain times to
encourage customers to come during slack
periods

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manner. This document may not be copied, scanned, duplicated, forwarded, distributed, or posted on a website, in whole or part.
 Price-Lowering Techniques

 Bundling
 Combining two or more products in one unit and
pricing it less than if the units were sold
separately.
 Multiple or bonus pack
 Combining more than one unit of the same
product and pricing it lower than if each unit
were sold separately.

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manner. This document may not be copied, scanned, duplicated, forwarded, distributed, or posted on a website, in whole or part.
 Price-Lowering Techniques
 Coupons, Rebates, Loyalty and Referral
Programs
 Referral discount
 A discount given to a
customer who refers a
friend to the business

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manner. This document may not be copied, scanned, duplicated, forwarded, distributed, or posted on a website, in whole or part.
 Pricing Strategy Wrap-up
 Temporary reduction in price won’t tarnish
your product image
 Consumers also feel smart about buying
something at a better price
 They will feel they got a great deal

© 2014 by McGraw-Hill Education. This is proprietary material solely for authorized instructor use. Not authorized for sale or distribution in any 9-20
manner. This document may not be copied, scanned, duplicated, forwarded, distributed, or posted on a website, in whole or part.