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Ch11 - Developing Pricing Strategies and Programs

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29 views26 pages

Ch11 - Developing Pricing Strategies and Programs

Uploaded by

vwfn8f7xmt
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 PPT, PDF, TXT or read online on Scribd
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Chapter

11
Developing
Pricing Strategies
and Programs

Copyright © 2016 Pearson Education, Inc. 11-1


Learning Objectives

1. How do consumers process and evaluate


prices?
2. How should a company set prices initially?
3. How should a company adapt prices to meet
varying circumstances and opportunities?
4. When and how should a company initiate a
price change and respond to a competitor’s
price changes?
Copyright © 2016 Pearson Education, Inc. 11-2
Understanding Pricing
• How companies price
– Small companies: One manager
– Large companies: division/product line
managers
• How companies should price
– Understanding of consumer pricing
psychology
– A systematic approach to setting, adapting,
and changing prices
Copyright © 2016 Pearson Education, Inc. 11-3
VISUAL EXAMPLE
• https://www.netsuite.com/portal/resource/articl
es/ecommerce/psychological-pricing.shtml

Copyright © 2016 Pearson Education, Inc. 11-4


Consumer Psychology and Pricing

Reference prices
(Discount based on Ads)

Price-quality inferences
(Use Price to determine
Quality)

Price endings ($9.99)

Copyright © 2016 Pearson Education, Inc. 11-5


Setting the Price

Copyright © 2016 Pearson Education, Inc. 11-6


Step 1: Selecting the Pricing
Objective

Increase
Survival
current profit

Increase
Product-quality market share
leadership

Market
skimming

Copyright © 2016 Pearson Education, Inc. 11-7


Step 2:
Determining Demand
• Price sensitivity
• Estimating demand
curves
– Surveys, price
experiments, &
statistical analysis
• Price elasticity of
demand

Copyright © 2016 Pearson Education, Inc. 11-8


Step 3: Estimating Costs
• Types of costs and levels of
production
– Fixed vs. variable costs
– Total costs
– Average cost

Copyright © 2016 Pearson Education, Inc. 11-9


Step 3: Estimating Costs
• Target costing
– Price less desired profit margin

Copyright © 2016 Pearson Education, Inc. 11-10


Step 4: Analyzing Competitors’
Costs, Prices, and Offers
• Firm must take competitors’ costs, prices, &
reactions into account

Copyright © 2016 Pearson Education, Inc. 11-11


Step 5: Selecting a Pricing Method
• Figure 11.2: three major
considerations in price
– Costs = price floor
– Competitors’ prices =
orienting point
– Customers’ assessment of
unique features = price
ceiling

Copyright © 2016 Pearson Education, Inc. 11-12


Step 5: Selecting a Pricing Method

• Markup pricing: Adding specific % on cost

Copyright © 2016 Pearson Education, Inc. 11-13


Step 5: Selecting a Pricing Method

• Target-return pricing: return a desired profit assuming


that a particular quantity of the product is sold

Copyright © 2016 Pearson Education, Inc. 11-14


Figure 11.3
Break-Even for Target-Return Price

Copyright © 2016 Pearson Education, Inc. 11-15


Step 5: Selecting a Pricing Method
• Perceived-value pricing
– Based on buyer’s image of product, channel
deliverables, warranty quality, customer
support, and softer attributes (e.g., reputation)

Copyright © 2016 Pearson Education, Inc. 11-16


Step 5: Selecting a Pricing Method

• Value pricing:
market-driven
pricing strategy
according to its
perceived or
estimated value.

Copyright © 2016 Pearson Education, Inc. 11-17


Step 6: Selecting the Final Price

• Additional factors to select final price:

 Impact of other marketing activities


 Company pricing policies
 Gain-and-risk-sharing pricing
 Impact of price on other parties

Copyright © 2016 Pearson Education, Inc. 11-18


Conclusion: Pricing Methods
• Value-based
• Competition-based
• Cost-plus
• Dynamic pricing (demand & or time-based)

Copyright © 2016 Pearson Education, Inc. 11-19


Adapting the Price
• Geographical pricing
– Barter
– Compensation deal
– Buyback agreement
– Offset

Copyright © 2016 Pearson Education, Inc. 11-20


Price Promotions
• Price discounts and allowances

Copyright © 2016 Pearson Education, Inc. 11-21


Adapting the Price
• Promotional pricing:

• Special event pricing • Low-interest financing


• Special customer • Longer payment terms
pricing • Warranties/service
• Cash rebates contracts

Copyright © 2016 Pearson Education, Inc. 11-22


Adapting the Price
• Price discrimination
– Yield pricing

Copyright © 2016 Pearson Education, Inc. 11-23


Responding
to Price Changes
• Price-cutting
– Low-quality
– Fragile market share
– Shallow pockets
– Price war

Copyright © 2016 Pearson Education, Inc. 11-24


Proactive
Responding
to Price Changes
• Initiating price increases
– Cost inflation
– Proactive pricing
– Overdemand

Copyright © 2016 Pearson Education, Inc. 11-25


Copyright © 2016 Pearson Education, Inc. 11-26

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