Slide 11.

it’s good and

good for you

Chapter 11
Additional pricing
considerations

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Slide 11.2

Pricing strategies
Topic outline
• New product pricing strategies
• Product mix pricing strategies
• Price adjustment strategies
• Price changes
• Public policy and marketing

Kotler et al., Principles of Marketing, 6th edition © Pearson Education Limited 2013
Slide 11.3

New product pricing strategies

Pricing strategies
• Market-skimming pricing
• Market-penetration pricing

Kotler et al., Principles of Marketing, 6th edition © Pearson Education Limited 2013
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New product pricing strategies

(Continued)

Market-skimming pricing is a strategy with 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.
• Costs of producing the product in small volume
should not cancel the advantage of higher prices.
• Competitors should not be able to enter the market
easily.

Kotler et al., Principles of Marketing, 6th edition © Pearson Education Limited 2013
Slide 11.5

New product pricing strategies

(Continued)

Market-penetration pricing sets a low price for a

new product to attract a large number of buyers
and a large market share.
• Price sensitive market.
• Inverse relationship of production and distribution
cost to sales growth.
• Low prices must keep competition out of the
market.

Kotler et al., Principles of Marketing, 6th edition © Pearson Education Limited 2013
Slide 11.6

Product mix pricing strategies

Optional Captive
Product
product product
line pricing
pricing pricing

Product
By-product
bundle
pricing
pricing

Kotler et al., Principles of Marketing, 6th edition © Pearson Education Limited 2013
Slide 11.7

Product mix pricing strategies

(Continued)

Product line pricing takes into account the

cost differences between products in the
line, customer evaluation of their features
and competitors’ prices.
Optional product pricing takes into account
optional or accessory products along with
the main product.

Kotler et al., Principles of Marketing, 6th edition © Pearson Education Limited 2013
Slide 11.8

Product mix pricing strategies

(Continued)

Captive-product pricing involves products

that must be used along with the main
product.
By-product pricing refers to products with
little or no value produced as a result of
the main product. Producers will seek
little or no profit other than the cost to
cover storage and delivery.
Kotler et al., Principles of Marketing, 6th edition © Pearson Education Limited 2013
Slide 11.9

Price mix pricing strategies

Product bundle pricing combines several

products at a reduced price.

Kotler et al., Principles of Marketing, 6th edition © Pearson Education Limited 2013
Slide 11.10

Price adjustment strategies

Discount and
Segmented
allowance
pricing
pricing

Psychological Promotional
pricing pricing

Geographic Dynamic International

pricing pricing pricing

Kotler et al., Principles of Marketing, 6th edition © Pearson Education Limited 2013
Slide 11.11

Price adjustment strategies

(Continued)

Discount and allowance pricing reduces

prices to reward customer responses such
as paying early or promoting the product.
• Discounts (2/10, n 30) – Quantity discount,
Seasonal Discount.
• Allowances – Trade-in-Allowances

Kotler et al., Principles of Marketing, 6th edition © Pearson Education Limited 2013
Slide 11.12

Price adjustment strategies

(Continued)
Segmented pricing is used when a company sells a product at
two or more prices even though the difference is not based
on cost.

• Customer-segment pricing is when different customers pay

different prices for the same product or service.

• Product-form segment pricing is when different versions of the

product are priced differently but not according to differences
in cost.

• Location pricing is when the product sold in different

geographic areas is priced differently even though the cost is
the same.

Kotler et al., Principles of Marketing, 6th edition © Pearson Education Limited 2013
Slide 11.13

Price adjustment strategies

(Continued)
Segmented pricing
To be effective:
• Market must be segmentable.
• Segments must show different degrees of
demand.
• The cost of segmenting the market cannot
exceed the extra revenue obtained from the
price difference.
• Must be legal.

Kotler et al., Principles of Marketing, 6th edition © Pearson Education Limited 2013
Slide 11.14

Price adjustment strategies

(Continued)

Psychological pricing occurs when sellers consider the

psychology of prices and not simply the economics.
Reference prices are prices that buyers carry in their
minds and refer to when looking at a given product.
– Noting current prices
– Remembering past prices
– Assessing the buying situations

Kotler et al., Principles of Marketing, 6th edition © Pearson Education Limited 2013
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Price adjustment strategies

(Continued)

Promotional pricing is when prices are temporarily

priced below list price, and sometimes even
below cost, to increase short-run sales
• Loss leaders
• Special event pricing
• Cash rebates
• Low-interest financing
• Longer warranties
• Free maintenance

Kotler et al., Principles of Marketing, 6th edition © Pearson Education Limited 2013
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Price adjustment strategies

(Continued)

Risks of promotional pricing

• Used too frequently, and copies by
competitors can create ‘deal-prone’
customers who will wait for promotions
and avoid buying at regular price.
• Creates price wars.

Kotler et al., Principles of Marketing, 6th edition © Pearson Education Limited 2013
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Price adjustment strategies

(Continued)

Geographical pricing is used for customers in

different parts of the country or the world.
• FOB-origin pricing
• Uniformed-delivered pricing
• Zone pricing
• Basing-point pricing
• Freight-absorption pricing

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Slide 11.18

Price adjustment strategies

(Continued)

• FOB-origin (free on board) pricing means

that the goods are delivered to the carrier
and the title and responsibility passes to
the customer.
• Uniformed-delivered pricing means the
company charges the same price plus
freight to all customers, regardless of
location.
Kotler et al., Principles of Marketing, 6th edition © Pearson Education Limited 2013
Slide 11.19

Price adjustment strategies

(Continued)

• Zone pricing means that the company sets up

two or more zones where customers within a
given zone pay a single total price.
• Basing-point pricing means that a seller
selects a given city as a ‘basing point’ and
charges all customers the freight cost
associated from that city to the customer
location, regardless of the city from which the
goods are actually shipped.

Kotler et al., Principles of Marketing, 6th edition © Pearson Education Limited 2013
Slide 11.20

Price adjustment strategies

(Continued)

• Freight-absorption pricing means the seller

absorbs all or part of the actual freight
charge as an incentive to attract business in
competitive markets.

Kotler et al., Principles of Marketing, 6th edition © Pearson Education Limited 2013
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Price adjustment strategies

(Continued)

Dynamic pricing is when prices are adjusted

continually to meet the characteristics and
needs of the individual customer and
situations.

Kotler et al., Principles of Marketing, 6th edition © Pearson Education Limited 2013
Slide 11.22

Price adjustment strategies

(Continued)

International pricing is when prices are set in a

specific country based on country-specific
factors.
• Economic conditions
• Competitive conditions
• Laws and regulations
• Infrastructure
• Company marketing objective

Kotler et al., Principles of Marketing, 6th edition © Pearson Education Limited 2013
Slide 11.23

Price changes
Initiating pricing changes

Price cuts occur due to:

• Excess capacity
• Increased market share

Price increase from:

• Cost inflation
• Increased demand
• Lack of supply
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Slide 11.24

Price changes (Continued)

Buyer reactions to pricing changes

Price
Price cuts
increases
• Product is ‘hot’ • New models will
• Company greed be available
• Models are not
selling well
• Quality issues

Kotler et al., Principles of Marketing, 6th edition © Pearson Education Limited 2013
Slide 11.25

Price changes (Continued)

Responding to price changes
Questions
– Why did the competitor change the price?
– Is the price cut permanent or temporary?
– What is the effect on market share and profits?
– Will competitors respond?

Kotler et al., Principles of Marketing, 6th edition © Pearson Education Limited 2013
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Price changes (Continued)

Responding to price changes
Solutions
– Reduce price to match competition
– Maintain price but raise the perceived value
through communications
– Improve quality and increase price
– Launch a lower-price ‘fighting’ brand.

Kotler et al., Principles of Marketing, 6th edition © Pearson Education Limited 2013
Slide 11.27

Price changes (Continued)

Assessing and responding to price changes

Figure 11.1 Assessing and responding to competitor price changes

Kotler et al., Principles of Marketing, 6th edition © Pearson Education Limited 2013
Slide 11.28

Public policy and pricing

Pricing within channel levels
Price fixing: Sellers must set prices without
talking to competitors.
Predatory pricing: Selling below cost with the
intention of punishing a competitor or
gaining higher long-term profits by putting
competitors out of business.

Kotler et al., Principles of Marketing, 6th edition © Pearson Education Limited 2013
Slide 11.29

Public policy and pricing (Continued)

Pricing across channel levels
Retail (or resale) price maintenance is
when a manufacturer requires a dealer
to charge a specific retail price for its
products.

Kotler et al., Principles of Marketing, 6th edition © Pearson Education Limited 2013
Slide 11.30

Public policy and pricing (Continued)

Pricing across channel levels
Deceptive pricing occurs when a seller states prices
or price savings that mislead consumers or are
not actually available to consumers.
• Scanner fraud failure of the seller to enter current
or sale prices into the computer system.
• Price confusion results when firms employ pricing
methods that make it difficult for consumers to
understand what price they are really paying.

Kotler et al., Principles of Marketing, 6th edition © Pearson Education Limited 2013