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Chapter 9 Pricing: Understanding and Capturing Customer Value
Copyright © 2015 Pearson Education, Inc.
9-1
CHAPTER 9
PRICING: UNDERSTANDING AND CAPTURING CUSTOMER VALUE
PREVIEWING THE CONCEPTS – CHAPTER OBJECTIVES
1. Identify the three major pricing strategies and discuss the importance of understanding
customer-value perceptions, company costs, and competitor strategies when setting
prices.
2. Identify and define the other important internal and external factors affecting a firm’s
pricing decisions.
3. Describe the major strategies for pricing new products.
4. Explain how companies find a set of prices that maximizes the profits from the total
product mix.
5. Discuss how companies adjust their prices to take into account different types of
customers and situations.
6. Discuss the key issues related to initiating and responding to price changes.
JUST THE BASICS
CHAPTER OVERVIEW
Firms successful at creating customer value with the other marketing mix activities must capture
this value in the prices they earn.
Despite its importance, many firms do not handle pricing well.
In this chapter, we begin with the question, “What is a price?” Next, we look at three major
pricing strategies – customer value-based, cost-based, and competition-based pricing – and at
other factors that affect pricing decisions.
Finally, we examine pricing strategies for new-product pricing, product mix pricing, price
adjustments, and dealing with price changes.
ANNOTATED CHAPTER NOTES/OUTLINE
FIRST STOP
Trader Joe’s: A Special Twist on the Price-Value Equation – Cheap Gourmet
Trader Joe’s isn’t really a gourmet food store. Then again, it’s not a discount food store either.
It’s actually both.
Trader Joe’s puts its own special twist on the price-value equation – call it cheap gourmet. It
offers gourmet-caliber, one-of-a-kind products at bargain prices in a vacation-like atmosphere
that makes shopping fun.
Part 3 Designing a Customer-Driven Strategy and Mix
Copyright © 2015 Pearson Education, Inc.
9-2
Trader Joe’s describes itself as an “island paradise” where “value, adventure, and tasty treasures
are discovered every day.”
Shelves bristle with an eclectic assortment of gourmet-quality grocery items. They stock only
about 4,000 products (compared with 50,000 items in a typical grocery store).
You cannot buy most of their items elsewhere.
How does Trader Joe’s keep its gourmet prices so low? It carefully shapes nonprice elements to
support its overall price-value strategy.
It’s all about value and price – what you get for what you pay.
INTRODUCTION
Companies today face a fierce and fast-changing pricing environment.
Yet, cutting prices is often not the best answer.
WHAT IS A PRICE?
In the narrowest sense, price is the amount of money charged for a product or service.
Use Key Term Price here.
More broadly, price is the sum of all the values that customers 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.
Price is one of the most flexible marketing mix elements.
MAJOR PRICING STRATEGIES
Figure 9.1 summarizes the major considerations in setting price.
Use Chapter Objective 1 here.
Use Figure 9.1 here.
Use Discussion Question 9-1 here.
Customer Value-Based Pricing
Chapter 9 Pricing: Understanding and Capturing Customer Value
Copyright © 2015 Pearson Education, Inc.
9-3
In the end, the customer will decide whether a product’s price is right.
Figure 9.1 suggests three pricing strategies: customer value-based pricing, cost-based pricing,
and competition-based pricing.
Use Figure 9.2 here.
Customer value-based pricing uses buyers’ perceptions of value, not the seller’s cost, as the
key to pricing.
Price is considered along with the other marketing mix variables before the marketing program is
set.
Figure 9.2 compares value-based pricing with cost-based pricing.
Cost-based pricing is product driven.
“Good value” is not the same as “low price.”
Two types of value-based pricing are good-value pricing and value-added pricing.
Use Key Terms Customer Value-Based Pricing and Good-Value Pricing here.
Use Marketing Ethics here.
1. Good-value pricing involves offering just the right combination of quality and good
service at a fair price.
Everyday low pricing (EDLP). 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.
2. Value-added pricing is the strategy of attaching value-added features and services to
differentiate their offers and thus support higher prices.
Use Key Term Value-Added Pricing here.
Use Discussion Question 9-2 here.
Use Marketing at Work 9.1 here.
Cost-Based Pricing
Whereas customer-value perceptions set the price ceilings, costs set the floor for the price that
Part 3 Designing a Customer-Driven Strategy and Mix
Copyright © 2015 Pearson Education, Inc.
9-4
the company can charge.
Cost-based pricing involves setting prices based on the costs for producing, distributing, and
selling the product plus a fair rate of return for effort and risk.
Types of Costs
Fixed costs (also known as overhead) are costs that do not vary with production or sales level.
Variable costs vary directly with the level of production. They are called variable because their
total varies with the number of units produced.
Use Key Terms Cost-Based Pricing, Fixed Costs (Overhead), and Variable Costs here.
Total costs are the sum of the fixed and variable costs for any given level of production.
Use Key Term Total Costs here.
Cost-Plus Pricing
Use Key Term Cost-Plus Pricing (Markup Pricing) here.
The simplest pricing method is cost-plus pricing (markup pricing) – adding a standard markup
to the cost of the product.
Does using standard markups to set prices make sense? Generally, no.
Markup pricing remains popular for many reasons.
1. Sellers are more certain about costs than about demand.
2. When all firms in the industry use this pricing method, prices tend to be similar and price
competition is thus minimized.
Another cost-oriented pricing approach is break-even pricing, or a variation called target profit
pricing. The firm tries to determine the price at which it will break even or make the target profit
it is seeking.
Target return pricing uses the concept of a break-even chart, which shows total cost and total
revenue expected at different sales volume levels.
The major problem with this analysis is that it fails to consider customer value and the
relationship between price and demand.
Chapter 9 Pricing: Understanding and Capturing Customer Value
Copyright © 2015 Pearson Education, Inc.
9-5
Typically, as the price increases, demand decreases.
Use Key Term Break-even Pricing (Target Return Pricing) here.
Use Figure 9.3 here.
Competition-Based Pricing
Competition-based pricing involves setting prices based on competitors’ strategies, costs, prices,
and market offerings.
What principle should guide decisions about what price to charge relative to those of
competitors? The answer is simple in concept but difficult in practice.
Be certain to give customers superior value for the price.
Use Key Term Competition-Based Pricing here.
Other Internal and External Considerations Affecting Price Decisions
Overall Marketing Strategy, Objectives, and Mix
Price is only one of the marketing mix tools that a company uses to achieve its marketing
objectives.
Price decisions must be coordinated with product design, distribution, and promotion decisions
to form a consistent and effective integrated marketing program.
Companies often position their products on price and then tailor other marketing mix decisions to
the prices they want to charge.
Target costing starts with an ideal selling price based on customer-value considerations, and
then targets costs that will ensure that the price is met.
Use Chapter Objective 2 here.
Use Key Term Target Costing here.
Companies may deemphasize price and use other marketing mix tools to create nonprice
positions.
Organizational Considerations
In small companies, prices are often set by top management rather than by the marketing or sales
departments.
Part 3 Designing a Customer-Driven Strategy and Mix
Copyright © 2015 Pearson Education, Inc.
9-6
In large companies, pricing is typically handled by divisional or product line managers.
In industrial markets, salespeople may be allowed to negotiate with customers within certain
price ranges.
In industries in which pricing is a key factor, companies often have pricing departments to set the
best prices or to help others in setting them.
The Market and Demand
Pricing in Different Types of Markets
Pure competition: The market consists of many buyers and sellers trading in a uniform
commodity. No single buyer or seller has much effect on the going market price.
In a purely competitive market, marketing research, product development, pricing, advertising,
and sales promotion play little or no role. Thus, sellers in these markets do not spend much time
on marketing strategy.
Monopolistic competition: The market consists of many buyers and sellers who trade over a
range of prices rather than a single market price. A range of prices occurs because sellers can
differentiate their offers to buyers.
Oligopolistic competition: The market consists of a few sellers who are highly sensitive to each
other’s pricing and marketing strategies.
There are few sellers because it is difficult for new sellers to enter the market.
Pure monopoly: The market consists of one seller. The seller may be a government monopoly, a
private regulated monopoly, or a private nonregulated monopoly.
Analyzing the Price-Demand Relationship
The relationship between the price charged and the resulting demand level is shown in the
demand curve (Figure 9.4).
Use Key Term Demand Curve here.
Use Figure 9.4 here.
In a normal case, demand and price are inversely related; that is, the higher the price, the lower
the demand.
In a monopoly, the demand curve shows the total market demand resulting from different prices.
Chapter 9 Pricing: Understanding and Capturing Customer Value
Copyright © 2015 Pearson Education, Inc.
9-7
If the company faces competition, its demand at different prices will depend on whether
competitors’ prices stay constant or change with the company’s own prices.
Price Elasticity of Demand
Price elasticity: How responsive demand will be to a change in price.
If demand hardly changes with a small change in price, we say demand is inelastic.
If demand changes greatly with a small change in price, we say the demand is elastic.
Use Key Term Price Elasticity here.
Use Discussion Question 9-3 here.
Use Critical Thinking Exercise 9-7 here.
Use Marketing by the Numbers here.
The Economy
Economic conditions can have a strong impact on the firm’s pricing strategies.
In the aftermath of the recent Great Recession, consumers have rethought the price-value
equation. Many consumers have tightened their belts and become more value conscious.
The most obvious response to the new economic reality is to cut process. Rather than cutting
prices, many companies are shifting their marketing to focus on more affordable items in their
product mixes.
Remember, even in tough economic times, consumers do not buy based on price alone.
The key is to offer great value for the money.
Other External Factors
The company must also consider what impact its prices will have on other parties in its
environment, such as resellers and the government.
Social concerns may have to be taken into account.
Use Linking the Concepts here.
Part 3 Designing a Customer-Driven Strategy and Mix
Copyright © 2015 Pearson Education, Inc.
9-8
NEW-PRODUCT PRICING STRATEGIES
Market-Skimming Pricing
Market-skimming pricing (or price skimming) is setting high initial prices to “skim” revenues
layer by layer from the market.
Market skimming makes sense under certain conditions.
1. The product’s quality and image must support its higher price and enough buyers must
want the product at that price.
2. The costs of producing a smaller volume cannot be so high that they cancel the advantage
of charging more.
3. Competitors should not be able to enter the market easily and undercut the high price.
Use Key Term Market-Skimming Pricing (Price Skimming) here.
Use Chapter Objective 3 here.
Market-Penetration Pricing
Market-penetration pricing is setting a low initial price in order to penetrate the market
quickly and deeply—to attract a large number of buyers quickly and win a large market share.
Several conditions must be met for this strategy to work.
1. The market must be highly price sensitive so that a low price produces more market
growth.
2. Production and distribution costs must fall as sales volume increases.
3. The low price must help keep out the competition, and the penetration pricer must
maintain its low-price position.
Use Discussion Question 9-4 here.
Use Key Term Market-Penetration Pricing here.
PRODUCT MIX PRICING STRATEGIES (Table 9.1)
In product line pricing, management must decide on the price steps to set between the various
products in a line.
Use Table 9.1 here.
The price steps should take into account cost differences between the products in the line.
Chapter 9 Pricing: Understanding and Capturing Customer Value
Copyright © 2015 Pearson Education, Inc.
9-9
Use Key Term Product Line Pricing here.
Use Chapter Objective 4 here.
Optional product pricing is offering to sell optional or accessory products along with a main
product.
Use Key Term Optional Product Pricing here.
In captive product pricing, companies make products that must be used along with a main
product.
Use Key Term Captive Product Pricing here.
In the case of services, captive-product pricing is called two-part pricing. The price of the
service is broken into a fixed fee plus a variable usage rate.
Using by-product pricing, the company seeks a market for the by-products produced in the
generation of some products and services.
Use Key Term By-Product Pricing here.
Using product bundle pricing, sellers often combine several of their products and offer the
bundle at a reduced price.
Use Key Term Product Bundle Pricing here.
Use Marketing Ethics here.
PRICE-ADJUSTMENT (Table 9.2)
Use Chapter Objective 5 here.
Use Table 9.2 here.
Discounts include:
• Cash discount is a price reduction to buyers who pay their bills promptly.
• Quantity discount is a price reduction to buyers who buy large volumes.
• Functional discount (also called a trade discount) is offered by the seller to trade-
channel members who perform certain functions.
• Seasonal discount is a price reduction to buyers who buy merchandise or services out of
season.
Part 3 Designing a Customer-Driven Strategy and Mix
Copyright © 2015 Pearson Education, Inc.
9-10
Allowances are a reduction from the list price.
• Trade-in allowances are price reductions given for turning in an old item when buying a
new one.
• Promotional allowances are payments or price reductions to reward dealers for
participating in advertising and sales support programs.
Use Key Terms Discount and Allowance here.
Segmented pricing occurs when the company sells a product or service at two or more prices,
even though the difference in prices is not based on differences in costs.
• Customer-segment pricing: different customers pay different prices for the same product
or service.
• Product-form pricing: Different versions of the product are priced differently but not
according to differences in their costs.
• Location-based pricing: A company charges different prices for different locations, even
though the cost of offering each location is the same.
• Time-based pricing: A firm varies its price by the season, the month, the day, and even
the hour.
Use Key Term Segmented Pricing here.
Psychological pricing occurs when sellers consider the psychology of prices and not simply the
economics.
One aspect of psychological pricing is reference prices—prices that buyers carry in their minds
and refer to when looking at a given product.
Use Key Terms Psychological Pricing and Reference Prices here.
Use Discussion Question 9-5 here.
With promotional pricing, companies will temporarily price their products below list price and
sometimes even below cost to create buying excitement and urgency.
• Discounts: A reduction from normal prices to increase sales and reduce inventories.
• Special-event pricing: Pricing differently in certain seasons to draw more customers.
• Limited-time offers (flash sales): Create buying urgency and make buyers feel lucky to
have gotten in on the deal.
• Cash rebates: Offered to consumers who buy the product from dealers within a specified
time; the manufacturer sends the rebate directly to the customer.
Promotional pricing can have adverse effects.
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Chapter 9 Pricing: Understanding and Capturing Customer Value
Copyright © 2015 Pearson Education, Inc.
9-11
1. Price promotions can create “deal-prone” customers who wait until brands go on sale
before buying them.
2. Constantly reduced prices can erode a brand’s value in the eyes of customers.
3. Promotional pricing can lead to industry price wars.
Use Key Term Promotional Pricing here.
Geographical Pricing involves deciding how to price products for customers located in different
parts of the country or world.
• FOB-origin pricing: The goods are placed free on board (hence, FOB) a carrier. At that
point the title and responsibility pass to the customer, who pays the freight from the
factory to the destination.
• Uniform-delivered pricing is the opposite of FOB pricing. Here, the company charges
the same price plus freight to all customers, regardless of their location.
• Zone pricing falls between FOB-origin pricing and uniform-delivered pricing. All
customers within a given zone pay a single total price; the more distant the zone, the
higher the price.
• Basing-point pricing: The seller selects a given city as a “basing point” and charges all
customers the freight cost from that city to the customer location, regardless of the city
from which the goods are actually shipped.
• Freight-absorption pricing. Using this strategy, the seller absorbs all or part of the
actual freight charges in order to get the desired business.
Dynamic and Internet Pricing
Dynamic Pricing is adjusting prices continually to meet the characteristics and needs of
individual customers and situations.
Dynamic pricing is extremely prevalent online where the Internet seems to be taking us back to a
new age of fluid pricing.
Dynamic pricing offers many advantages:
• Internet sellers can mine their databases to gauge a specific shopper’s desires, measure
his or her means, and instantaneously tailor products to fit that shopper’s behavior, and
price products accordingly.
• Buyers can also negotiate prices at online auction sites and exchanges.
• Internet buyers benefit from the Web and dynamic pricing. A wealth of price comparison
sites—such as Yahoo! Shopping and PriceGrabber—offer instant product and price
Part 3 Designing a Customer-Driven Strategy and Mix
Copyright © 2015 Pearson Education, Inc.
9-12
comparisons from thousands of vendors.
Use Critical Thinking Exercise 9-6 here.
Use Key Term Dynamic Pricing here.
Use Online, Mobile, and Social Media Marketing here.
Use Marketing at Work 9.2 here.
International Pricing
The price that a company should charge in a specific country depends on many factors, including
economic conditions, competitive situations, laws and regulations, and development of the
wholesaling and retailing system.
Costs play an important role in setting international prices.
PRICE CHANGES
Initiating Price Changes
Initiating Price Cuts
Several situations may lead a firm to consider cutting its price.
• Excess capacity
• Falling demand in the face of strong price competition
• Desire to dominate market
Initiating Price Increases
A major factor in price increases is cost inflation.
When raising prices, the company must avoid being perceived as a price gouger.
One technique for avoiding this problem is to maintain a sense of fairness surrounding any price
increase.
Buyer Reactions to Price Changes
Customers do not always view price changes in a straightforward or rational way. They may
view price cuts or price increases in several ways.
Chapter 9 Pricing: Understanding and Capturing Customer Value
Copyright © 2015 Pearson Education, Inc.
9-13
Competitor Reactions to Price Changes
Competitors are most likely to react when the number of firms involved is small, when the
product is uniform, and when the buyers are well informed about products and prices.
Responding to Price Changes (Figure 9.5)
The firm needs to consider several issues: Why did the competitor change the price? Is the price
change temporary or permanent? What will happen to the company’s market share and profits if
it does not respond? Are other competitors going to respond?
Figure 9.5 shows the ways a company might assess and respond to a competitor’s price cut.
Use Figure 9.5 here.
1. The company could reduce its price to match the competitor’s price.
2. The company could maintain its price but raise the perceived value of its offer.
3. The company could improve quality and increase price, moving its brand into a higher
price-value position.
4. The company could launch a low-price “fighter brand”—adding a lower-price item to
the line or creating a separate lower-price brand.
Use Chapter Objective 6 here.
Use Figure 9.6 here.
PUBLIC POLICY AND PRICING
Figure 9.6 shows the major public policy issues in pricing.
Pricing Within Channel Levels
Federal legislation on price-fixing states that sellers must set prices without talking to
competitors. Otherwise, price collusion is suspected.
Sellers are prohibited from using predatory pricing—selling below cost with the intention of
punishing a competitor or gaining higher long-run profits by putting competitors out of business.
Pricing Across Channel Levels
The Robinson-Patman Act seeks to prevent unfair price discrimination by ensuring that sellers
offer the same price terms to customers at a given level of trade.
Laws prohibit retail (or resale) price maintenance—a manufacturer cannot require dealers to
charge a specified retail price for its product.
Part 3 Designing a Customer-Driven Strategy and Mix
Copyright © 2015 Pearson Education, Inc.
9-14
Although the seller can propose a manufacturer’s suggested retail price to dealers, it cannot
refuse to sell to a dealer who takes independent pricing action, nor can it punish the dealer by
shipping late or denying advertising allowances.
Deceptive pricing occurs when a seller states prices or price savings that mislead consumers or
are not actually available to consumers.
Other deceptive pricing issues include scanner fraud and price confusion.
END OF CHAPTER MATERIAL
Discussion and Critical Thinking
Discussion Questions
Discussion Questions
9-1. Name and describe the two types of value-based pricing methods. (AACSB: Written and
oral communication)
Answer:
There are two types of value-based pricing: good-value pricing and value-added pricing.
Good-value pricing strategies offer just the right combination of quality and good service at a
fair price. In many cases, this has involved introducing less-expensive versions of
established, brand name products. In other cases, good-value pricing has involved
redesigning existing brands to offer more quality for a given price or the same quality for
less. An important type of good-value pricing at the retail level is everyday low pricing
(EDLP). EDLP involves charging a constant, everyday low price with few or no temporary
price discounts. To increase their pricing power, many companies adopt value-added pricing
strategies. Rather than cutting prices to match competitors, they attach value-added features
and services to differentiate their offers and thus support higher prices.
9-2. Describe the cost-plus pricing method and discuss why marketers use it even if it is not
the best method for setting prices. (AACSB: Written and oral communication)
Answer:
The simplest pricing method is cost-plus pricing (or markup pricing)—adding a standard
markup to the cost of the product. For example, an electronics retailer might pay a
manufacturer $20 for a flash drive and mark it up to sell at $30, a 50-percent markup on cost.
The retailer’s gross margin is $10. If the store’s operating costs amount to $8 per flash drive
sold, the retailer’s profit margin will be $2. The manufacturer that made the flash drive
Chapter 9 Pricing: Understanding and Capturing Customer Value
Copyright © 2015 Pearson Education, Inc.
9-15
probably used cost-plus pricing, too. If the manufacturer’s standard cost of producing the
flash drive was $16, it might have added a 25 percent markup, setting the price to the
retailers at $20.
Does using standard markups to set prices make sense? Generally, no. Any pricing method
that ignores consumer demand and competitor prices is not likely to lead to the best price.
Still, markup pricing remains popular for many reasons. First, sellers are more certain about
costs than about demand. By tying the price to cost, sellers simplify pricing. Second, when
all firms in the industry use this pricing method, prices tend to be similar, and price
competition is minimized.
9-3. What is price elasticity? Why is it important for marketers to consider price elasticity
when making pricing decisions? (AACSB: Written and oral communication; Reflective
thinking)
Answer:
Price elasticity is how responsive demand will be to a change in price. If demand hardly
changes with a small change in price, we say demand is inelastic. If demand changes greatly,
we say the demand is elastic. If demand is elastic rather than inelastic, sellers will consider
lowering their prices. A lower price will produce more total revenue. This practice makes
sense as long as the extra costs of producing and selling more do not exceed the extra
revenue. At the same time, most firms want to avoid pricing that turns their products into
commodities.
9-4. Name and describe the two broad new product pricing strategies. When would each be
appropriate? (AACSB: Written and oral communication)
Answer:
Companies bringing out a new product face the challenge of setting prices for the first time.
They can choose between two broad strategies: market-skimming pricing and market-
penetration pricing.
Many companies that invent new products set high initial prices to “skim” revenues layer by
layer from the market, a strategy called market-skimming pricing (or price skimming).
Market skimming makes sense only under certain conditions. First, the product’s quality and
image must support its higher price, and enough buyers must want the product at that price.
Second, the costs of producing a smaller volume cannot be so high that they cancel the
advantage of charging more. Finally, competitors should not be able to enter the market
easily and undercut the high price.
Rather than setting a high initial price to skim off small but profitable market segments, some
companies use market-penetration pricing. They set a low initial price in order to penetrate
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Marketing An Introduction 12th Edition Armstrong Solutions Manual
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Marketing An Introduction 12th Edition Armstrong Solutions Manual
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Marketing An Introduction 12th Edition Armstrong Solutions Manual
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me surmonte.
De M. le marquis DE
MONTAUSIER.
Marketing An Introduction 12th Edition Armstrong Solutions Manual
I
L'ANEMONE.
Madrigal.
E m'offre à vous, belle IVLIE,
Mais ne refusez pas mes vœux;
La COVRONNE qu'on met dessus vos
beaux cheueux
Sans moy ne peut estre
accomplie.
Ie dois entre les Fleurs tenir le premier
rang;
On ne sçauroit cueillir que parmy les
épines
Cette Fleur que Vénus fit naistre de son
sang,
Et ie n'en mesle point à mes beautez
diuines;
Mais l'éclat de votre beauté
M'accuse de temerité,
Ie céderai toujours aux Roses,
Tandis qu'elles seront sur vôtre teint
écloses.
De M. le marquis DE
MONTAUSIER.
Marketing An Introduction 12th Edition Armstrong Solutions Manual
F
D
LA VIOLETTE[14].
Madrigal.
RANCHE d'ambition, ie me cache sous
l'herbe,
Modeste en ma couleur, modeste en mon
séiour;
Mais si sur vostre front ie me puis voir vn
jour,
La plus humble des Fleurs sera la plus
superbe.
De M. DES MARESTZ.
LA VIOLETTE.
Madrigal.
E tant de Fleurs par qui la France
Peut les yeux et l'ame rauir,
Vne seule ne me deuance
Au juste soin de te seruir.
Que si la Rose en son partage
Fait gloire de quelque auantage
Que le Ciel daigne luy donner,
Elle a tort d'en estre plus fiére,
I'ay l'honneur d'estre la premiére
Qui naisse pour te couronner.
De M. DE MALLEVILLE.
Marketing An Introduction 12th Edition Armstrong Solutions Manual
M
LES LYS.
Madrigal.
ERVEILLE de nos jours, dont les
charmes vainqueurs
Rauissent les esprits et regnent dans les
cœurs,
Rare present du Ciel, adorable IVLIE;
Lors que toutes les Fleurs d'vn email
precieux
Viennent rendre à l'enuy ta COVRONNE
embellie,
C'est sur moy que tu dois arrester tes
beaux yeux.
De la Reyne de l'air ie suis la fleur
diuine,
Ma blancheur de son lait tire son origine,
Il se fait voir encor sur mon teint sans
pareil;
Et le Dieu dont les loix forment la
destinée
Veut que le plus grand Roy qu'éclaire le
Soleil
Ayt de moy seulement la teste
couronnée.
Au temple de Thémis ie preside auec
luy;
Son Throsne glorieux est mon illustre
appuy;
La valeur de ce Mars fait pour moy des
miracles,
Et ie dois espérer que par son bras
puissant
S'accompliront bien-tôt les celebres
oracles
Qui me promettent place au dessus du
Croissant.
Mais parmy ces grandeurs, le bruit de
ton merite
A me donner à toy si fortement m'jnuite,
Que ie veux de ma gloire enrichir ta
beauté.
En vain toutes les Fleurs, dans leur
pompe suprême
Se vantent de t'orner d'vn Royal
Diadême,
Leur plus superbe éclat n'a point de
majesté.
Nulle autre que le LYS sans audace
n'aspire
A te rendre vn honneur qui soit digne de
toy:
Elles parent ton front, et ie t'offre vn
Empire,
Puis qu'en te couronnant, ie t'égale à
mon Roy.
De M. D' ANDILLY.
LES LYS[15].
Madrigal.
L
R
E plus ardent de tous mes vœux
Est de couronner tes cheueux,
Et ie croy, si ie ne me flatte,
Que ie puis aspirer à cet honneur
nouueau;
Car par moy ton visage est beau,
Et par moy de nos Roys le Diadême
éclatte:
Mais i'ay plus de gloire cent fois,
Et ie tire plus d'auantage
D'éclatter dessus ton visage
Que dessus la teste des Roys.
De M. le marquis DE
MONTAUSIER.
LES LYS[16].
Madrigal.
EÇOY les LYS que ie te donne,
Pour en former vne Couronne
Par qui ton pouuoir soit dépeint;
C'est l'ornement que ie t'apreste:
Pour rendre ce qu'on doit aux LYS de ton
beau teint,
Il t'en faut mettre sur la teste.
De M. DE MALLEVILLE.
D
I
LE LYS.
Madrigal.
EVANT vous je pers la victoire
Que ma blancheur me fit donner,
Et ne preten plus d'autre gloire
Que celle de vous couronner.
Le Ciel, par vn honneur insigne,
Fit choix de moy seul autres fois,
Comme de la Fleur la plus digne
Pour faire vn present à nos Roys.
Mais si i'obtenois ma requeste,
Mon sort seroit plus glorieux
D'estre monté sur vôtre teste
Que d'estre descendu des Cieux.
De M. DES REAUX-TALLEMANT.
LES LYS.
Madrigal.
E puis mettre, entre les louanges
Qui me rendent si glorieux,
D'auoir fleury dedans les Cieux,
Cultiué de la main des Anges;
Mais, certes, c'est y retourner
Q
V
Que de vous pouuoir couronner.
De M. MARTIN.
LES LYS[17].
Madrigal.
VE i'ay de gloire à cette fois,
Que j'ombrage ces belles tresses!
Ie ne couronnois que les Roys,
Et ie couronne les Déesses.
De M. MARTIN.
LES LYS[18].
Madrigal.
N diuin oracle, autres fois,
A dit que ma pompe et ma gloire
Sur celle du plus grand des Roys
Pouuoit emporter la victoire;
Mais si i'obtiens, selon mes vœux,
De pouuoir parer vos cheueux,
B
Ie dois, ô IVLIE adorable,
Toute autre gloire abandonner,
Car nul honneur n'est comparable
A celuy de vous couronner.
De M. C... (?)
LES LYS[19].
Madrigal.
ELLE, ces LYS que ie vous donne,
Auront plus d'honneur mille fois
De seruir à vôtre COVRONNE
Que d'estre couronnez aux armes de nos
Roys.
De M. DES MARETZ.
Marketing An Introduction 12th Edition Armstrong Solutions Manual
I
LA TVLIPE[20].
Madrigal.
E fus vn Berger, autres fois,
Qui, poussé d'vne belle audace,
Alla cueillir dessus Parnasse
Des lauriers plus fameux que les lauriers
des Roys.
Ce genereux desir d'vne éternelle gloire
Ne m'empécha pas de seruir
Auec les Filles de Mémoire
Les mortelles beautez qui me sceurent
rauir.
Mais mon âme fut si volage,
A tant d'obiets diuers elle rendit
hommage,
Et les bergeres si souuent,
En me reprochant leurs caresses,
Se plaignirent que mes promesses
Se perdoient parmy l'air dessus l'aile du
vent,
Qu'Amour vint d'vne main
puissante
Me transformer en cette Fleur,
Qui, comme i'eus l'ame
inconstante,
Est inconstante en sa couleur.
Miracle de nos iours, si mes yeux
t'eussent veuë
Avec tous ces appas dont le Ciel t'a
pourueuë,
Mon cœur n'eut point esté leger;
I
Mais mon sort me console, et pour ma
gloire ordonne,
Depuis que i'ay l'honneur d'embellir ta
COVRONNE,
Que mes viues couleurs ne pourront plus
changer.
De M. GODEAU.
LA TVLIPE.
Madrigal.
E suis le plus brillant ouurage
Dont le pinceau de Flore embellit les
estez,
Et sur les autres Fleurs i'ay le même
auantage
Qu'a le feu de tes yeux sur les autres
clartez.
Mais dans l'éclat qui m'enuironne,
Et qui de cent couleurs reléue mes
beautez,
La gloire que le Ciel me donne,
D'estre vne fleur de ta COVRONNE,
A pour moy de si doux appas,
Que, bien que de ma mort ma gloire soit
suiuie,
Pour mourir d'vn si beau trépas,
J'ayme mieux la mort que la vie.
B
P
De M. ARNAUD DE CORBEVILLE.
LA TVLIPE, AV SOLEIL[21].
Madrigal.
EL Astre à qui je dois mon estre et ma
beauté,
Ajoûte l'jmmortalité
A l'éclat nompareil dont ie suis embellie;
Empêche que le temps n'efface mes
couleurs:
Pour Throsne donne-moy le beau front
de IVLIE;
Et si cet heureux sort à ma gloire s'allie,
Ie seray la Reyne des Fleurs.
De M. C. (CORNEILLE.)
LA TVLIPE
NOMMÉE FLAMBOYANTE.
Madrigal.
ERMETTEZ-MOY, belle IVLIE,
De mesler mes viues couleurs
A celles de ces rares Fleurs,
Dont vôtre teste est embellie:
Ie porte le nom glorieux
Qu'on doit donner à vos beaux yeux.
De M. le marquis DE
MONTAUSIER.
Marketing An Introduction 12th Edition Armstrong Solutions Manual
D
LA IONQUILLE[22].
Madrigal.
ANS la Fable, ni dans l'Histoire
Il ne se parle point de moy;
Je ne me puis vanter de posséder la
gloire
De descendre du sang ni d'vn Dieu ni
d'vn Roy:
Mais la passion véritable
Que vous témoigne ma couleur,
Plus qu'vne plus illustre Fleur
Me doit rendre recommandable.
O beauté qu'on doit adorer!
Permettez-moy de vous parer,
Et ie m'estimeray cent fois plus glorieuse
Que celle dont l'histoire est cent fois plus
fameuse.
De M. le marquis DE
MONTAUSIER.
Marketing An Introduction 12th Edition Armstrong Solutions Manual
I
D
L'HYACINTHE[23].
Madrigal.
E n'ay plus de regret à ces armes
fameuses
Dont l'jniuste refus précipita mon sort;
Si ie n'ai possedé ces marques
glorieuses,
Vn destin plus heureux m'accompagne à
la mort;
Le sang que i'ay versé d'vne illustre folie
A fait naistre vne Fleur qui couronne
IVLIE.
De M. le M. DE R. (marquis DE
RAMBOUILLET).
L'HYACINTHE.
Madrigal.
EPVIS mon changement, tout l'Vniuers
remarque
Que d'vn triste et muet discours
Ie me plains qu'en mes plus
beaux jours
I'ai ressenti la rigueur de la Parque;
D
Mais ie cesse de murmurer;
Car l'extrême plaisir que i'ai de te parer
Efface maintenant la plainte
Que mes feuilles portoient
empreinte.
De M. le marquis DE
MONTAUSIER.
L'HYACINTHE[24].
Madrigal.
'VN éternel bon-heur ma disgrace est
suiuie;
Ie n'ai plus rien en moy qui marque mon
ennuy,
Autres fois vn Soleil me fit perdre la vie;
Mais vn autre Soleil me la rend
aujourd'huy.
De M. C. (?)
Marketing An Introduction 12th Edition Armstrong Solutions Manual
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  • 5. Chapter 9 Pricing: Understanding and Capturing Customer Value Copyright © 2015 Pearson Education, Inc. 9-1 CHAPTER 9 PRICING: UNDERSTANDING AND CAPTURING CUSTOMER VALUE PREVIEWING THE CONCEPTS – CHAPTER OBJECTIVES 1. Identify the three major pricing strategies and discuss the importance of understanding customer-value perceptions, company costs, and competitor strategies when setting prices. 2. Identify and define the other important internal and external factors affecting a firm’s pricing decisions. 3. Describe the major strategies for pricing new products. 4. Explain how companies find a set of prices that maximizes the profits from the total product mix. 5. Discuss how companies adjust their prices to take into account different types of customers and situations. 6. Discuss the key issues related to initiating and responding to price changes. JUST THE BASICS CHAPTER OVERVIEW Firms successful at creating customer value with the other marketing mix activities must capture this value in the prices they earn. Despite its importance, many firms do not handle pricing well. In this chapter, we begin with the question, “What is a price?” Next, we look at three major pricing strategies – customer value-based, cost-based, and competition-based pricing – and at other factors that affect pricing decisions. Finally, we examine pricing strategies for new-product pricing, product mix pricing, price adjustments, and dealing with price changes. ANNOTATED CHAPTER NOTES/OUTLINE FIRST STOP Trader Joe’s: A Special Twist on the Price-Value Equation – Cheap Gourmet Trader Joe’s isn’t really a gourmet food store. Then again, it’s not a discount food store either. It’s actually both. Trader Joe’s puts its own special twist on the price-value equation – call it cheap gourmet. It offers gourmet-caliber, one-of-a-kind products at bargain prices in a vacation-like atmosphere that makes shopping fun.
  • 6. Part 3 Designing a Customer-Driven Strategy and Mix Copyright © 2015 Pearson Education, Inc. 9-2 Trader Joe’s describes itself as an “island paradise” where “value, adventure, and tasty treasures are discovered every day.” Shelves bristle with an eclectic assortment of gourmet-quality grocery items. They stock only about 4,000 products (compared with 50,000 items in a typical grocery store). You cannot buy most of their items elsewhere. How does Trader Joe’s keep its gourmet prices so low? It carefully shapes nonprice elements to support its overall price-value strategy. It’s all about value and price – what you get for what you pay. INTRODUCTION Companies today face a fierce and fast-changing pricing environment. Yet, cutting prices is often not the best answer. WHAT IS A PRICE? In the narrowest sense, price is the amount of money charged for a product or service. Use Key Term Price here. More broadly, price is the sum of all the values that customers 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. Price is one of the most flexible marketing mix elements. MAJOR PRICING STRATEGIES Figure 9.1 summarizes the major considerations in setting price. Use Chapter Objective 1 here. Use Figure 9.1 here. Use Discussion Question 9-1 here. Customer Value-Based Pricing
  • 7. Chapter 9 Pricing: Understanding and Capturing Customer Value Copyright © 2015 Pearson Education, Inc. 9-3 In the end, the customer will decide whether a product’s price is right. Figure 9.1 suggests three pricing strategies: customer value-based pricing, cost-based pricing, and competition-based pricing. Use Figure 9.2 here. Customer value-based pricing uses buyers’ perceptions of value, not the seller’s cost, as the key to pricing. Price is considered along with the other marketing mix variables before the marketing program is set. Figure 9.2 compares value-based pricing with cost-based pricing. Cost-based pricing is product driven. “Good value” is not the same as “low price.” Two types of value-based pricing are good-value pricing and value-added pricing. Use Key Terms Customer Value-Based Pricing and Good-Value Pricing here. Use Marketing Ethics here. 1. Good-value pricing involves offering just the right combination of quality and good service at a fair price. Everyday low pricing (EDLP). 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. 2. Value-added pricing is the strategy of attaching value-added features and services to differentiate their offers and thus support higher prices. Use Key Term Value-Added Pricing here. Use Discussion Question 9-2 here. Use Marketing at Work 9.1 here. Cost-Based Pricing Whereas customer-value perceptions set the price ceilings, costs set the floor for the price that
  • 8. Part 3 Designing a Customer-Driven Strategy and Mix Copyright © 2015 Pearson Education, Inc. 9-4 the company can charge. Cost-based pricing involves setting prices based on the costs for producing, distributing, and selling the product plus a fair rate of return for effort and risk. Types of Costs Fixed costs (also known as overhead) are costs that do not vary with production or sales level. Variable costs vary directly with the level of production. They are called variable because their total varies with the number of units produced. Use Key Terms Cost-Based Pricing, Fixed Costs (Overhead), and Variable Costs here. Total costs are the sum of the fixed and variable costs for any given level of production. Use Key Term Total Costs here. Cost-Plus Pricing Use Key Term Cost-Plus Pricing (Markup Pricing) here. The simplest pricing method is cost-plus pricing (markup pricing) – adding a standard markup to the cost of the product. Does using standard markups to set prices make sense? Generally, no. Markup pricing remains popular for many reasons. 1. Sellers are more certain about costs than about demand. 2. When all firms in the industry use this pricing method, prices tend to be similar and price competition is thus minimized. Another cost-oriented pricing approach is break-even pricing, or a variation called target profit pricing. The firm tries to determine the price at which it will break even or make the target profit it is seeking. Target return pricing uses the concept of a break-even chart, which shows total cost and total revenue expected at different sales volume levels. The major problem with this analysis is that it fails to consider customer value and the relationship between price and demand.
  • 9. Chapter 9 Pricing: Understanding and Capturing Customer Value Copyright © 2015 Pearson Education, Inc. 9-5 Typically, as the price increases, demand decreases. Use Key Term Break-even Pricing (Target Return Pricing) here. Use Figure 9.3 here. Competition-Based Pricing Competition-based pricing involves setting prices based on competitors’ strategies, costs, prices, and market offerings. What principle should guide decisions about what price to charge relative to those of competitors? The answer is simple in concept but difficult in practice. Be certain to give customers superior value for the price. Use Key Term Competition-Based Pricing here. Other Internal and External Considerations Affecting Price Decisions Overall Marketing Strategy, Objectives, and Mix Price is only one of the marketing mix tools that a company uses to achieve its marketing objectives. Price decisions must be coordinated with product design, distribution, and promotion decisions to form a consistent and effective integrated marketing program. Companies often position their products on price and then tailor other marketing mix decisions to the prices they want to charge. Target costing starts with an ideal selling price based on customer-value considerations, and then targets costs that will ensure that the price is met. Use Chapter Objective 2 here. Use Key Term Target Costing here. Companies may deemphasize price and use other marketing mix tools to create nonprice positions. Organizational Considerations In small companies, prices are often set by top management rather than by the marketing or sales departments.
  • 10. Part 3 Designing a Customer-Driven Strategy and Mix Copyright © 2015 Pearson Education, Inc. 9-6 In large companies, pricing is typically handled by divisional or product line managers. In industrial markets, salespeople may be allowed to negotiate with customers within certain price ranges. In industries in which pricing is a key factor, companies often have pricing departments to set the best prices or to help others in setting them. The Market and Demand Pricing in Different Types of Markets Pure competition: The market consists of many buyers and sellers trading in a uniform commodity. No single buyer or seller has much effect on the going market price. In a purely competitive market, marketing research, product development, pricing, advertising, and sales promotion play little or no role. Thus, sellers in these markets do not spend much time on marketing strategy. Monopolistic competition: The market consists of many buyers and sellers who trade over a range of prices rather than a single market price. A range of prices occurs because sellers can differentiate their offers to buyers. Oligopolistic competition: The market consists of a few sellers who are highly sensitive to each other’s pricing and marketing strategies. There are few sellers because it is difficult for new sellers to enter the market. Pure monopoly: The market consists of one seller. The seller may be a government monopoly, a private regulated monopoly, or a private nonregulated monopoly. Analyzing the Price-Demand Relationship The relationship between the price charged and the resulting demand level is shown in the demand curve (Figure 9.4). Use Key Term Demand Curve here. Use Figure 9.4 here. In a normal case, demand and price are inversely related; that is, the higher the price, the lower the demand. In a monopoly, the demand curve shows the total market demand resulting from different prices.
  • 11. Chapter 9 Pricing: Understanding and Capturing Customer Value Copyright © 2015 Pearson Education, Inc. 9-7 If the company faces competition, its demand at different prices will depend on whether competitors’ prices stay constant or change with the company’s own prices. Price Elasticity of Demand Price elasticity: How responsive demand will be to a change in price. If demand hardly changes with a small change in price, we say demand is inelastic. If demand changes greatly with a small change in price, we say the demand is elastic. Use Key Term Price Elasticity here. Use Discussion Question 9-3 here. Use Critical Thinking Exercise 9-7 here. Use Marketing by the Numbers here. The Economy Economic conditions can have a strong impact on the firm’s pricing strategies. In the aftermath of the recent Great Recession, consumers have rethought the price-value equation. Many consumers have tightened their belts and become more value conscious. The most obvious response to the new economic reality is to cut process. Rather than cutting prices, many companies are shifting their marketing to focus on more affordable items in their product mixes. Remember, even in tough economic times, consumers do not buy based on price alone. The key is to offer great value for the money. Other External Factors The company must also consider what impact its prices will have on other parties in its environment, such as resellers and the government. Social concerns may have to be taken into account. Use Linking the Concepts here.
  • 12. Part 3 Designing a Customer-Driven Strategy and Mix Copyright © 2015 Pearson Education, Inc. 9-8 NEW-PRODUCT PRICING STRATEGIES Market-Skimming Pricing Market-skimming pricing (or price skimming) is setting high initial prices to “skim” revenues layer by layer from the market. Market skimming makes sense under certain conditions. 1. The product’s quality and image must support its higher price and enough buyers must want the product at that price. 2. The costs of producing a smaller volume cannot be so high that they cancel the advantage of charging more. 3. Competitors should not be able to enter the market easily and undercut the high price. Use Key Term Market-Skimming Pricing (Price Skimming) here. Use Chapter Objective 3 here. Market-Penetration Pricing Market-penetration pricing is setting a low initial price in order to penetrate the market quickly and deeply—to attract a large number of buyers quickly and win a large market share. Several conditions must be met for this strategy to work. 1. The market must be highly price sensitive so that a low price produces more market growth. 2. Production and distribution costs must fall as sales volume increases. 3. The low price must help keep out the competition, and the penetration pricer must maintain its low-price position. Use Discussion Question 9-4 here. Use Key Term Market-Penetration Pricing here. PRODUCT MIX PRICING STRATEGIES (Table 9.1) In product line pricing, management must decide on the price steps to set between the various products in a line. Use Table 9.1 here. The price steps should take into account cost differences between the products in the line.
  • 13. Chapter 9 Pricing: Understanding and Capturing Customer Value Copyright © 2015 Pearson Education, Inc. 9-9 Use Key Term Product Line Pricing here. Use Chapter Objective 4 here. Optional product pricing is offering to sell optional or accessory products along with a main product. Use Key Term Optional Product Pricing here. In captive product pricing, companies make products that must be used along with a main product. Use Key Term Captive Product Pricing here. In the case of services, captive-product pricing is called two-part pricing. The price of the service is broken into a fixed fee plus a variable usage rate. Using by-product pricing, the company seeks a market for the by-products produced in the generation of some products and services. Use Key Term By-Product Pricing here. Using product bundle pricing, sellers often combine several of their products and offer the bundle at a reduced price. Use Key Term Product Bundle Pricing here. Use Marketing Ethics here. PRICE-ADJUSTMENT (Table 9.2) Use Chapter Objective 5 here. Use Table 9.2 here. Discounts include: • Cash discount is a price reduction to buyers who pay their bills promptly. • Quantity discount is a price reduction to buyers who buy large volumes. • Functional discount (also called a trade discount) is offered by the seller to trade- channel members who perform certain functions. • Seasonal discount is a price reduction to buyers who buy merchandise or services out of season.
  • 14. Part 3 Designing a Customer-Driven Strategy and Mix Copyright © 2015 Pearson Education, Inc. 9-10 Allowances are a reduction from the list price. • Trade-in allowances are price reductions given for turning in an old item when buying a new one. • Promotional allowances are payments or price reductions to reward dealers for participating in advertising and sales support programs. Use Key Terms Discount and Allowance here. Segmented pricing occurs when the company sells a product or service at two or more prices, even though the difference in prices is not based on differences in costs. • Customer-segment pricing: different customers pay different prices for the same product or service. • Product-form pricing: Different versions of the product are priced differently but not according to differences in their costs. • Location-based pricing: A company charges different prices for different locations, even though the cost of offering each location is the same. • Time-based pricing: A firm varies its price by the season, the month, the day, and even the hour. Use Key Term Segmented Pricing here. Psychological pricing occurs when sellers consider the psychology of prices and not simply the economics. One aspect of psychological pricing is reference prices—prices that buyers carry in their minds and refer to when looking at a given product. Use Key Terms Psychological Pricing and Reference Prices here. Use Discussion Question 9-5 here. With promotional pricing, companies will temporarily price their products below list price and sometimes even below cost to create buying excitement and urgency. • Discounts: A reduction from normal prices to increase sales and reduce inventories. • Special-event pricing: Pricing differently in certain seasons to draw more customers. • Limited-time offers (flash sales): Create buying urgency and make buyers feel lucky to have gotten in on the deal. • Cash rebates: Offered to consumers who buy the product from dealers within a specified time; the manufacturer sends the rebate directly to the customer. Promotional pricing can have adverse effects.
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  • 16. Chapter 9 Pricing: Understanding and Capturing Customer Value Copyright © 2015 Pearson Education, Inc. 9-11 1. Price promotions can create “deal-prone” customers who wait until brands go on sale before buying them. 2. Constantly reduced prices can erode a brand’s value in the eyes of customers. 3. Promotional pricing can lead to industry price wars. Use Key Term Promotional Pricing here. Geographical Pricing involves deciding how to price products for customers located in different parts of the country or world. • FOB-origin pricing: The goods are placed free on board (hence, FOB) a carrier. At that point the title and responsibility pass to the customer, who pays the freight from the factory to the destination. • Uniform-delivered pricing is the opposite of FOB pricing. Here, the company charges the same price plus freight to all customers, regardless of their location. • Zone pricing falls between FOB-origin pricing and uniform-delivered pricing. All customers within a given zone pay a single total price; the more distant the zone, the higher the price. • Basing-point pricing: The seller selects a given city as a “basing point” and charges all customers the freight cost from that city to the customer location, regardless of the city from which the goods are actually shipped. • Freight-absorption pricing. Using this strategy, the seller absorbs all or part of the actual freight charges in order to get the desired business. Dynamic and Internet Pricing Dynamic Pricing is adjusting prices continually to meet the characteristics and needs of individual customers and situations. Dynamic pricing is extremely prevalent online where the Internet seems to be taking us back to a new age of fluid pricing. Dynamic pricing offers many advantages: • Internet sellers can mine their databases to gauge a specific shopper’s desires, measure his or her means, and instantaneously tailor products to fit that shopper’s behavior, and price products accordingly. • Buyers can also negotiate prices at online auction sites and exchanges. • Internet buyers benefit from the Web and dynamic pricing. A wealth of price comparison sites—such as Yahoo! Shopping and PriceGrabber—offer instant product and price
  • 17. Part 3 Designing a Customer-Driven Strategy and Mix Copyright © 2015 Pearson Education, Inc. 9-12 comparisons from thousands of vendors. Use Critical Thinking Exercise 9-6 here. Use Key Term Dynamic Pricing here. Use Online, Mobile, and Social Media Marketing here. Use Marketing at Work 9.2 here. International Pricing The price that a company should charge in a specific country depends on many factors, including economic conditions, competitive situations, laws and regulations, and development of the wholesaling and retailing system. Costs play an important role in setting international prices. PRICE CHANGES Initiating Price Changes Initiating Price Cuts Several situations may lead a firm to consider cutting its price. • Excess capacity • Falling demand in the face of strong price competition • Desire to dominate market Initiating Price Increases A major factor in price increases is cost inflation. When raising prices, the company must avoid being perceived as a price gouger. One technique for avoiding this problem is to maintain a sense of fairness surrounding any price increase. Buyer Reactions to Price Changes Customers do not always view price changes in a straightforward or rational way. They may view price cuts or price increases in several ways.
  • 18. Chapter 9 Pricing: Understanding and Capturing Customer Value Copyright © 2015 Pearson Education, Inc. 9-13 Competitor Reactions to Price Changes Competitors are most likely to react when the number of firms involved is small, when the product is uniform, and when the buyers are well informed about products and prices. Responding to Price Changes (Figure 9.5) The firm needs to consider several issues: Why did the competitor change the price? Is the price change temporary or permanent? What will happen to the company’s market share and profits if it does not respond? Are other competitors going to respond? Figure 9.5 shows the ways a company might assess and respond to a competitor’s price cut. Use Figure 9.5 here. 1. The company could reduce its price to match the competitor’s price. 2. The company could maintain its price but raise the perceived value of its offer. 3. The company could improve quality and increase price, moving its brand into a higher price-value position. 4. The company could launch a low-price “fighter brand”—adding a lower-price item to the line or creating a separate lower-price brand. Use Chapter Objective 6 here. Use Figure 9.6 here. PUBLIC POLICY AND PRICING Figure 9.6 shows the major public policy issues in pricing. Pricing Within Channel Levels Federal legislation on price-fixing states that sellers must set prices without talking to competitors. Otherwise, price collusion is suspected. Sellers are prohibited from using predatory pricing—selling below cost with the intention of punishing a competitor or gaining higher long-run profits by putting competitors out of business. Pricing Across Channel Levels The Robinson-Patman Act seeks to prevent unfair price discrimination by ensuring that sellers offer the same price terms to customers at a given level of trade. Laws prohibit retail (or resale) price maintenance—a manufacturer cannot require dealers to charge a specified retail price for its product.
  • 19. Part 3 Designing a Customer-Driven Strategy and Mix Copyright © 2015 Pearson Education, Inc. 9-14 Although the seller can propose a manufacturer’s suggested retail price to dealers, it cannot refuse to sell to a dealer who takes independent pricing action, nor can it punish the dealer by shipping late or denying advertising allowances. Deceptive pricing occurs when a seller states prices or price savings that mislead consumers or are not actually available to consumers. Other deceptive pricing issues include scanner fraud and price confusion. END OF CHAPTER MATERIAL Discussion and Critical Thinking Discussion Questions Discussion Questions 9-1. Name and describe the two types of value-based pricing methods. (AACSB: Written and oral communication) Answer: There are two types of value-based pricing: good-value pricing and value-added pricing. Good-value pricing strategies offer just the right combination of quality and good service at a fair price. In many cases, this has involved introducing less-expensive versions of established, brand name products. In other cases, good-value pricing has involved redesigning existing brands to offer more quality for a given price or the same quality for less. An important type of good-value pricing at the retail level is everyday low pricing (EDLP). EDLP involves charging a constant, everyday low price with few or no temporary price discounts. To increase their pricing power, many companies adopt value-added pricing strategies. Rather than cutting prices to match competitors, they attach value-added features and services to differentiate their offers and thus support higher prices. 9-2. Describe the cost-plus pricing method and discuss why marketers use it even if it is not the best method for setting prices. (AACSB: Written and oral communication) Answer: The simplest pricing method is cost-plus pricing (or markup pricing)—adding a standard markup to the cost of the product. For example, an electronics retailer might pay a manufacturer $20 for a flash drive and mark it up to sell at $30, a 50-percent markup on cost. The retailer’s gross margin is $10. If the store’s operating costs amount to $8 per flash drive sold, the retailer’s profit margin will be $2. The manufacturer that made the flash drive
  • 20. Chapter 9 Pricing: Understanding and Capturing Customer Value Copyright © 2015 Pearson Education, Inc. 9-15 probably used cost-plus pricing, too. If the manufacturer’s standard cost of producing the flash drive was $16, it might have added a 25 percent markup, setting the price to the retailers at $20. Does using standard markups to set prices make sense? Generally, no. Any pricing method that ignores consumer demand and competitor prices is not likely to lead to the best price. Still, markup pricing remains popular for many reasons. First, sellers are more certain about costs than about demand. By tying the price to cost, sellers simplify pricing. Second, when all firms in the industry use this pricing method, prices tend to be similar, and price competition is minimized. 9-3. What is price elasticity? Why is it important for marketers to consider price elasticity when making pricing decisions? (AACSB: Written and oral communication; Reflective thinking) Answer: Price elasticity is how responsive demand will be to a change in price. If demand hardly changes with a small change in price, we say demand is inelastic. If demand changes greatly, we say the demand is elastic. If demand is elastic rather than inelastic, sellers will consider lowering their prices. A lower price will produce more total revenue. This practice makes sense as long as the extra costs of producing and selling more do not exceed the extra revenue. At the same time, most firms want to avoid pricing that turns their products into commodities. 9-4. Name and describe the two broad new product pricing strategies. When would each be appropriate? (AACSB: Written and oral communication) Answer: Companies bringing out a new product face the challenge of setting prices for the first time. They can choose between two broad strategies: market-skimming pricing and market- penetration pricing. Many companies that invent new products set high initial prices to “skim” revenues layer by layer from the market, a strategy called market-skimming pricing (or price skimming). Market skimming makes sense only under certain conditions. First, the product’s quality and image must support its higher price, and enough buyers must want the product at that price. Second, the costs of producing a smaller volume cannot be so high that they cancel the advantage of charging more. Finally, competitors should not be able to enter the market easily and undercut the high price. Rather than setting a high initial price to skim off small but profitable market segments, some companies use market-penetration pricing. They set a low initial price in order to penetrate
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  • 31. F D LA VIOLETTE[14]. Madrigal. RANCHE d'ambition, ie me cache sous l'herbe, Modeste en ma couleur, modeste en mon séiour; Mais si sur vostre front ie me puis voir vn jour, La plus humble des Fleurs sera la plus superbe. De M. DES MARESTZ. LA VIOLETTE. Madrigal. E tant de Fleurs par qui la France Peut les yeux et l'ame rauir, Vne seule ne me deuance Au juste soin de te seruir. Que si la Rose en son partage Fait gloire de quelque auantage Que le Ciel daigne luy donner, Elle a tort d'en estre plus fiére,
  • 32. I'ay l'honneur d'estre la premiére Qui naisse pour te couronner. De M. DE MALLEVILLE.
  • 34. M LES LYS. Madrigal. ERVEILLE de nos jours, dont les charmes vainqueurs Rauissent les esprits et regnent dans les cœurs, Rare present du Ciel, adorable IVLIE; Lors que toutes les Fleurs d'vn email precieux Viennent rendre à l'enuy ta COVRONNE embellie, C'est sur moy que tu dois arrester tes beaux yeux. De la Reyne de l'air ie suis la fleur diuine, Ma blancheur de son lait tire son origine, Il se fait voir encor sur mon teint sans pareil; Et le Dieu dont les loix forment la destinée Veut que le plus grand Roy qu'éclaire le Soleil Ayt de moy seulement la teste couronnée. Au temple de Thémis ie preside auec luy; Son Throsne glorieux est mon illustre appuy; La valeur de ce Mars fait pour moy des miracles,
  • 35. Et ie dois espérer que par son bras puissant S'accompliront bien-tôt les celebres oracles Qui me promettent place au dessus du Croissant. Mais parmy ces grandeurs, le bruit de ton merite A me donner à toy si fortement m'jnuite, Que ie veux de ma gloire enrichir ta beauté. En vain toutes les Fleurs, dans leur pompe suprême Se vantent de t'orner d'vn Royal Diadême, Leur plus superbe éclat n'a point de majesté. Nulle autre que le LYS sans audace n'aspire A te rendre vn honneur qui soit digne de toy: Elles parent ton front, et ie t'offre vn Empire, Puis qu'en te couronnant, ie t'égale à mon Roy. De M. D' ANDILLY. LES LYS[15]. Madrigal.
  • 36. L R E plus ardent de tous mes vœux Est de couronner tes cheueux, Et ie croy, si ie ne me flatte, Que ie puis aspirer à cet honneur nouueau; Car par moy ton visage est beau, Et par moy de nos Roys le Diadême éclatte: Mais i'ay plus de gloire cent fois, Et ie tire plus d'auantage D'éclatter dessus ton visage Que dessus la teste des Roys. De M. le marquis DE MONTAUSIER. LES LYS[16]. Madrigal. EÇOY les LYS que ie te donne, Pour en former vne Couronne Par qui ton pouuoir soit dépeint; C'est l'ornement que ie t'apreste: Pour rendre ce qu'on doit aux LYS de ton beau teint, Il t'en faut mettre sur la teste. De M. DE MALLEVILLE.
  • 37. D I LE LYS. Madrigal. EVANT vous je pers la victoire Que ma blancheur me fit donner, Et ne preten plus d'autre gloire Que celle de vous couronner. Le Ciel, par vn honneur insigne, Fit choix de moy seul autres fois, Comme de la Fleur la plus digne Pour faire vn present à nos Roys. Mais si i'obtenois ma requeste, Mon sort seroit plus glorieux D'estre monté sur vôtre teste Que d'estre descendu des Cieux. De M. DES REAUX-TALLEMANT. LES LYS. Madrigal. E puis mettre, entre les louanges Qui me rendent si glorieux, D'auoir fleury dedans les Cieux, Cultiué de la main des Anges; Mais, certes, c'est y retourner
  • 38. Q V Que de vous pouuoir couronner. De M. MARTIN. LES LYS[17]. Madrigal. VE i'ay de gloire à cette fois, Que j'ombrage ces belles tresses! Ie ne couronnois que les Roys, Et ie couronne les Déesses. De M. MARTIN. LES LYS[18]. Madrigal. N diuin oracle, autres fois, A dit que ma pompe et ma gloire Sur celle du plus grand des Roys Pouuoit emporter la victoire; Mais si i'obtiens, selon mes vœux, De pouuoir parer vos cheueux,
  • 39. B Ie dois, ô IVLIE adorable, Toute autre gloire abandonner, Car nul honneur n'est comparable A celuy de vous couronner. De M. C... (?) LES LYS[19]. Madrigal. ELLE, ces LYS que ie vous donne, Auront plus d'honneur mille fois De seruir à vôtre COVRONNE Que d'estre couronnez aux armes de nos Roys. De M. DES MARETZ.
  • 41. I LA TVLIPE[20]. Madrigal. E fus vn Berger, autres fois, Qui, poussé d'vne belle audace, Alla cueillir dessus Parnasse Des lauriers plus fameux que les lauriers des Roys. Ce genereux desir d'vne éternelle gloire Ne m'empécha pas de seruir Auec les Filles de Mémoire Les mortelles beautez qui me sceurent rauir. Mais mon âme fut si volage, A tant d'obiets diuers elle rendit hommage, Et les bergeres si souuent, En me reprochant leurs caresses, Se plaignirent que mes promesses Se perdoient parmy l'air dessus l'aile du vent, Qu'Amour vint d'vne main puissante Me transformer en cette Fleur, Qui, comme i'eus l'ame inconstante, Est inconstante en sa couleur. Miracle de nos iours, si mes yeux t'eussent veuë Avec tous ces appas dont le Ciel t'a pourueuë, Mon cœur n'eut point esté leger;
  • 42. I Mais mon sort me console, et pour ma gloire ordonne, Depuis que i'ay l'honneur d'embellir ta COVRONNE, Que mes viues couleurs ne pourront plus changer. De M. GODEAU. LA TVLIPE. Madrigal. E suis le plus brillant ouurage Dont le pinceau de Flore embellit les estez, Et sur les autres Fleurs i'ay le même auantage Qu'a le feu de tes yeux sur les autres clartez. Mais dans l'éclat qui m'enuironne, Et qui de cent couleurs reléue mes beautez, La gloire que le Ciel me donne, D'estre vne fleur de ta COVRONNE, A pour moy de si doux appas, Que, bien que de ma mort ma gloire soit suiuie, Pour mourir d'vn si beau trépas, J'ayme mieux la mort que la vie.
  • 43. B P De M. ARNAUD DE CORBEVILLE. LA TVLIPE, AV SOLEIL[21]. Madrigal. EL Astre à qui je dois mon estre et ma beauté, Ajoûte l'jmmortalité A l'éclat nompareil dont ie suis embellie; Empêche que le temps n'efface mes couleurs: Pour Throsne donne-moy le beau front de IVLIE; Et si cet heureux sort à ma gloire s'allie, Ie seray la Reyne des Fleurs. De M. C. (CORNEILLE.) LA TVLIPE NOMMÉE FLAMBOYANTE. Madrigal. ERMETTEZ-MOY, belle IVLIE, De mesler mes viues couleurs A celles de ces rares Fleurs, Dont vôtre teste est embellie: Ie porte le nom glorieux Qu'on doit donner à vos beaux yeux.
  • 44. De M. le marquis DE MONTAUSIER.
  • 46. D LA IONQUILLE[22]. Madrigal. ANS la Fable, ni dans l'Histoire Il ne se parle point de moy; Je ne me puis vanter de posséder la gloire De descendre du sang ni d'vn Dieu ni d'vn Roy: Mais la passion véritable Que vous témoigne ma couleur, Plus qu'vne plus illustre Fleur Me doit rendre recommandable. O beauté qu'on doit adorer! Permettez-moy de vous parer, Et ie m'estimeray cent fois plus glorieuse Que celle dont l'histoire est cent fois plus fameuse. De M. le marquis DE MONTAUSIER.
  • 48. I D L'HYACINTHE[23]. Madrigal. E n'ay plus de regret à ces armes fameuses Dont l'jniuste refus précipita mon sort; Si ie n'ai possedé ces marques glorieuses, Vn destin plus heureux m'accompagne à la mort; Le sang que i'ay versé d'vne illustre folie A fait naistre vne Fleur qui couronne IVLIE. De M. le M. DE R. (marquis DE RAMBOUILLET). L'HYACINTHE. Madrigal. EPVIS mon changement, tout l'Vniuers remarque Que d'vn triste et muet discours Ie me plains qu'en mes plus beaux jours I'ai ressenti la rigueur de la Parque;
  • 49. D Mais ie cesse de murmurer; Car l'extrême plaisir que i'ai de te parer Efface maintenant la plainte Que mes feuilles portoient empreinte. De M. le marquis DE MONTAUSIER. L'HYACINTHE[24]. Madrigal. 'VN éternel bon-heur ma disgrace est suiuie; Ie n'ai plus rien en moy qui marque mon ennuy, Autres fois vn Soleil me fit perdre la vie; Mais vn autre Soleil me la rend aujourd'huy. De M. C. (?)
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