copyright 2009, prentice-hall, inc.12-1 a framework for marketing management chapter 12 developing...
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Copyright 2009, Prentice-Hall, Inc. 12-1
A Framework forMarketing Management
Chapter 12Chapter 12Developing Pricing Strategies and Programs
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Chapter Questions
How do consumers process and evaluate prices?
How should a company set prices initially for its offerings?
How should a company adapt prices to meet varying circumstances and opportunities?
How should a company initiate a price change and respond to a competitor’s price change?
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Pricing Headaches
Focusing on costs and striving for the industry’s traditional margins.
Not revising price often enough to capitalize on market changes.
Setting price independently rather than as an intrinsic element of market-positioning strategy.
Not varying price enough for different products, segments, channels, and purchase occasions.
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Consumer Psychology and Pricing Reference prices Price-quality inferences Price cues
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Steps in Setting Price Policy
1. Select the pricing objective
2. Determine demand
3. Estimate costs
4. Analyze competitors’ costs, prices, and offers
5. Select a pricing method
6. Select the final price
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Step 1: Selecting the Pricing Objective Survival Maximum current profit Maximum market share Maximum market skimming Product-quality leadership
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Step 2: Determining Demand
Price sensitivity Estimating demand curves
Survey consumers Set different prices in similar territories Statistical analysis of past prices, quantities sold, and other
factors Price elasticity of demand
Inelastic—small change in demand with small change in price.
Elastic—considerable change in demand with small change in price.
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Step 3: Estimating Costs
Types of costs: Fixed costs—don’t vary with production or sales revenue. Variable costs—vary directly with the level of production. Total costs—sum of the fixed and variable costs. Average cost—cost per unit at that level of production;
equals total cost divided by production. Experience curve (or learning curve)—decline in
average cost with accumulated production experience.
Target costing—establish a new product’s desired functions, the price at which it will sell, and the desired profit margin.
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Step 4: Analyzing Competitors’ Costs, Prices, and Offers Does the firm offer features not offered by
competitors? Given this point of comparison, should the
price be higher, lower, or the same?
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Step 5: Selecting a Pricing Method The three Cs in selecting a price:
Customers’ demand schedule Cost function Competitors’ prices
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Price-Setting Methods
Markup pricing Target-return pricing Perceived-value pricing Value pricing Going-rate pricing Auction-type pricing
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Step 6: Selecting the Final Price Factors to consider:
Impact of other marketing activities Company pricing policies Gain-and-risk sharing pricing Impact of price on other parties
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Price-Adaptation Strategies
Geographical pricing Price discounts and allowances Promotional pricing Differential pricing Product-mix pricing
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Geographical Pricing
Company decides how to price its products to different customers in different locations and countries.
Countertrade: Barter Compensation deal Buyback arrangement Offset
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Price Discounts and Allowances Discounts—price reductions
Cash Quantity Functional Seasonal
Allowance—extra payment
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Promotional Pricing
Loss-leader pricing Special-event pricing Cash rebates Low-interest financing
Longer payment terms Warranties and service
contracts Psychological
discounting
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Differentiated Pricing
Customer-segment pricing Product-form pricing Image pricing Channel pricing Location pricing Time pricing
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Product-Mix Pricing
Product-line Optional-feature Captive-product
Two-part By-product Product-bundling
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Traps of Price-Cutting
Customers assume quality is low. A low price buys market share but not loyalty. Higher-priced competitors match the lower
prices but have longer staying power because of deeper cash reserves.
Trigger a price war.
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Increasing Prices
Delayed quotation pricing Escalator clauses Unbundling Reduction of discounts
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Responding to Low-Cost Rivals Increase differentiation of your products Intensify differentiation by offering more
benefits Set up a low-cost business
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All rights reserved. No part of this publication may be reproduced, stored in a retrieval system, or transmitted, in any form or by any means, electronic,
mechanical, photocopying, recording, or otherwise, without the prior written permission of the publisher. Printed in the United States of America.
Copyright © 2009 Pearson Education, Inc. Copyright © 2009 Pearson Education, Inc. Publishing as Prentice HallPublishing as Prentice Hall