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Chapter 10+11

The document discusses pricing strategies and concepts across two chapters, covering determining the appropriate price for products and services, strategies for new and existing products, adjusting prices for different customer segments, and psychological and promotional pricing techniques.

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mohamad nassrallah
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28 views

Chapter 10+11

The document discusses pricing strategies and concepts across two chapters, covering determining the appropriate price for products and services, strategies for new and existing products, adjusting prices for different customer segments, and psychological and promotional pricing techniques.

Uploaded by

mohamad nassrallah
Copyright
© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
Available Formats
Download as PPTX, PDF, TXT or read online on Scribd
You are on page 1/ 36

Principles of Marketing

Seventeenth Edition

Chapter 10 and 11

Pricing: Understanding and Capturing


Customer Value /Pricing Strategies
/Additional Considerations

Copyright © 2018 Pearson Education Ltd. All Rights Reserved.


Learning Objectives
10-1 “What is a price?” and discuss the importance of pricing in today’s fast-
changing environment.
10-2 Identify the three major pricing strategies and discuss the importance of
understanding customer-value perceptions, company costs, and
competitor strategies when setting prices.
10-3 Describe the major strategies for pricing new products.
10-4 Explain how companies find a set of prices that maximizes the profits
from the total product mix.
10-5 Discuss how companies adjust their prices to take into account different
types of customers and situations

Copyright © 2018 Pearson Education Ltd. All Rights Reserved.


Learning Objective 1
Answer the question “What is a price?” and discuss the importance of pricing
in today’s fast-changing environment.

Copyright © 2018 Pearson Education Ltd. All Rights Reserved.


What Is a Price?
Price is the amount of money charged for a product or service. It
is the sum of all the values that consumers give up in order to
gain the benefits of having or using a product or service.

Price is the only element in the marketing mix that produces


revenue
• all other elements represent costs

Copyright © 2018 Pearson Education Ltd. All Rights Reserved.


Learning Objective 2
Identify the three major pricing strategies and discuss the importance of
understanding customer-value perceptions, company costs, and competitor
strategies when setting prices.

Copyright © 2018 Pearson Education Ltd. All Rights Reserved.


Major Pricing Strategies

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Major Pricing Strategies

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Major Pricing Strategies
Customer Value-Based Pricing
Value-based pricing uses the buyers’ perceptions of value rather than the
seller’s cost.
• Value-based pricing is customer driven.
• Cost-based pricing is product driven.
• Price is set to match perceived value.

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Major Pricing Strategies
Customer Value-Based Pricing
• Good-value pricing is offering just the right combination of
quality and good service at a fair price.
• Everyday low pricing (EDLP) involves charging a constant everyday
low price with few or no temporary price discounts.
• High-low pricing involves charging higher prices on an everyday
basis but running frequent promotions to lower prices temporarily on
selected items.
• Value-added pricing attaches value-added features and services to
differentiate the companies offers and thus their higher prices.

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Major Pricing Strategies
Cost-Based Pricing
Cost-based pricing sets prices based on the costs for producing, distributing, and selling the product
plus a fair rate of return for effort and risk.

Fixed costs are the costs that do not vary with production or sales level.
•Rent
•Heat
•Interest
•Executive salaries

Variable costs vary directly with the level of production.


• Raw materials
• Packaging

Total costs are the sum of the fixed and variable costs for any given©level
Copyright of production.
2018 Pearson Education Ltd. All Rights Reserved.
Major Pricing Strategies
Cost-Based Pricing
Break-even pricing (target return pricing) is setting
price to break even on costs or to make a target return.

Figure 10.5 Break-Even Chart for Determining Target


Return Price and Break-Even Volume.

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Major Pricing Strategies
Cost-Based Pricing
Cost-plus pricing adds a standard markup to the cost of the product.
• Benefits
 Sellers are certain about costs.
 Price competition is minimized.
 Buyers feel it is fair.
• Disadvantages
 Ignores demand and competitor prices

Copyright © 2018 Pearson Education Ltd. All Rights Reserved.


Major Pricing Strategies

Copyright © 2018 Pearson Education Ltd. All Rights Reserved.


Learning Objective 3
Describe the major strategies for pricing new products

Copyright © 2018 Pearson Education Ltd. All Rights Reserved.


New Pricing Strategies
Market-skimming pricing strategy sets high initial prices to “skim”
revenue layers from the market.
• Product quality and image must support the price.
• Buyers must want the product at the price.

Copyright © 2018 Pearson Education Ltd. All Rights Reserved.


New Pricing Strategies
Market-penetration pricing involves setting a low
price for a new product in order to attract a large
number of buyers and a large market share.

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Learning Objective 4
Explain how companies find a set of prices that maximizes the profits from the
total product mix.

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Product Mix Pricing Strategies
Optional
Product line
product
pricing pricing

Captive
By-product
product
pricing
pricing
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Product Mix Pricing Strategies
Product Line and Optional Product Pricing
Product line pricing takes into account the cost differences between products
in the line, customer evaluations of their features, and competitors’ prices.
Optional product pricing takes into account optional or accessory products
along with the main product.

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Product Mix Pricing Strategies
Captive product pricing sets prices of
products that must be used along with
the main product.

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Product Mix Pricing Strategies

Product Line and Optional Product Pricing


By-product pricing sets a price for by-products in order to make the
main product’s price more competitive.
Product bundle pricing combines several products at a reduced price.

Copyright © 2018 Pearson Education Ltd. All Rights Reserved.


Learning Objective 5
Discuss how companies adjust their prices to take into account different types
of customers and situations.

Copyright © 2018 Pearson Education Ltd. All Rights Reserved.


Price Adjustment Strategies

Copyright © 2018 Pearson Education Ltd. All Rights Reserved.


Copyright © 2018 Pearson Education Ltd. All Rights Reserved.
Price Adjustment Strategies
Discount and allowance pricing reduces prices to reward customer responses
such as making volume purchases, paying early, or promoting the product.

Copyright © 2018 Pearson Education Ltd. All Rights Reserved.


Price Adjustment Strategies
Segmented pricing involves selling a
product or service at two or more prices,
where the difference in prices is not
based on differences in costs.

Copyright © 2018 Pearson Education Ltd. All Rights Reserved.


Price Adjustment Strategies
Segmented Pricing
• Customer-segment pricing
• Product-form pricing
• Location-based pricing
• Time-based pricing

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Price Adjustment Strategies

Segmented Pricing
For segmented pricing to be effective:
• Market must be segmentable
• Segments must show different degrees of demand
• Costs of segmenting cannot exceed the extra revenue
• Must be legal

Copyright © 2018 Pearson Education Ltd. All Rights Reserved.


Price Adjustment Strategies
Psychological Pricing
Psychological pricing considers the psychology of prices and not simply the
economics; the price is used to say something about the product.
Reference prices are prices that buyers carry in their minds and refer to when
they look at a given product.

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Price Adjustment Strategies
Promotional Pricing
Promotional pricing is characterized by temporarily pricing products below the
list price, and sometimes even below cost, to increase short-run sales. Examples
include:
• special-event pricing
• limited-time offers
• cash rebates
• low-interest financing, extended warranties, or free maintenance

Copyright © 2018 Pearson Education Ltd. All Rights Reserved.


Price Adjustment Strategies
Geographical pricing is used for customers in different parts of the country
or the world.

• FOB-origin pricing
• Uniform-delivered pricing
• Zone pricing
• Basing-point pricing
• Freight-absorption pricing

Copyright © 2018 Pearson Education Ltd. All Rights Reserved.


Price Adjustment Strategies

Geographical Pricing
FOB-origin (free on board) pricing is a geographical pricing strategy in
which goods are placed free on board a carrier; the customer pays the freight
from the factory to the destination.
Uniform-delivered pricing is a geographical pricing strategy in which the
company charges the same price plus freight to all customers, regardless of
their location.

Copyright © 2018 Pearson Education Ltd. All Rights Reserved.


Price Adjustment Strategies

Geographical Pricing
Zone pricing is a strategy in which the company sets up two or more zones
where customers within a given zone pay the same price.
Basing-point pricing means that a seller selects a given city as a “basing
point” and charges all customers the freight cost from that city to the
customer.

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Price Adjustment Strategies

Geographical Pricing
Freight-absorption pricing is a strategy in which the seller absorbs all or part
of the freight charges in order to get the desired business.

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Price Adjustment Strategies
Dynamic pricing involves adjusting prices
continually to meet the characteristics and
needs of individual customers and
situations.

Copyright © 2018 Pearson Education Ltd. All Rights Reserved.


Price Adjustment Strategies
International pricing involves adjusting
prices continually to meet the
characteristics and needs of individual
customers and situations.

Copyright © 2018 Pearson Education Ltd. All Rights Reserved.

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