mt 219 marketing unit six pricing note: this seminar will be recorded by the instructor
TRANSCRIPT
Review of Unit 5
• How did Unit 5 go? Questions or concerns?
• Instructor suggestions for Unit 6
• Additional questions?
Price vs. Non-Price Competition
• In price competition, competitors seek to match or beat the price of competitors
• The major advantage is flexibility in a parity product market• The more a product is like a commodity, the more it is used
• In non-price competition, factors other than price are emphasized• This is especially useful when a marketer has a unique product,
and helps avoid price wars
Assessing Demand
• Demand refers to the quantity of product sold at a particular price over a particular period of time
• The demand curve graphs demand over a range of prices with other factors constant
• In most cases, demand goes up as price goes down• The exception is prestige products. Why?
Price Elasticity
• Measures the sensitivity of demand to price changes
• If acceptable substitutes are available, markets tend to be elastic
• If not, they tend to be inelastic
• Examples of inelastic products?
Pricing Objectives
• Survival- pricing below cost- Not a good way to price unless necessary!
• Profit maximization- Most companies “optimize”• Target profit - setting of a specific target rate of return
for the company• Market share leadership - generate maximum market
share• Product quality leadership - prices at the higher end of
the market to reflect their product quality
Pricing Limits
• Costs set the “floor” for price
• Businesses can’t survive in the long term selling below cost
• Perceived value sets the “ceiling”- Why?
Pricing Bases
• Cost Plus and Markup pricing- Frequently used in retailing
• Demand or value based- priced based on perceived value of the product - varies by what customer is wiling to pay
- Strategy for most premium products.
• Competition based ( status quo ) - most brands priced very close to each other
- Avoid price wars.
Differential Pricing
• This implies that not every customer pays the same- There is a difference.
• Negotiated pricing – bargain for price- houses, cars and home improvements
• Secondary-Market pricing- Common internationally- early-bird specials, bargain matinees or off peak travel discounts- charge less for certain goods in countries where consumers may not have $ to buy them at prices charged in more developed countries
• Periodic discounting - look for these sales at certain times of the year since it allows them to buy at a discount over what they can normally buy the products for
- Year end model clearances, white sales
• Random discounting - since these are done randomly, people will generally stock-up when these types of sales occur since they do not know when the next discount might occur
New Product Pricing
• Skimming – set initial price high. Useful for unique products when competition cannot follow quickly.
• Where does the term come from?• Examples?
• Penetration – set initial price low to capture as much of the market as possible before competition enters.
• Examples?
Product-Line Pricing Strategies
• Captive pricing- Once you buy the basic system you need to buy replacements that often are available only from the maker of the basic system.
- Often used for disposable items- water filters, air freshener replacements, etc.
• Premium pricing - “show higher quality”
• Bait pricing – intention is to get consumer to buy higher priced product with more benefits or accessories.
- Often used in situations where there are personal sales involved, so salesperson can up-sell the customer the higher priced product.
• Price-Lining- Limited price points
Psychological Pricing1. Reference Pricing – compare…assumptions: higher-priced, multiple unit
2. Odd vs. even pricing - odd prices are perceived as lower than even ones
3. Multiple unit pricing
4. Customary pricing – traditional
5. Everyday low pricing
6. Prestige pricing
7. Bundle pricing – similar categories products bundled together.
Promotional Pricing
• Price leaders/Loss leaders – stores place popular items such as eggs or milk at extremely low price to attract customers to the store, hoping they will purchase other products while there
• Special event pricing – name a “holiday”, it’s a good reason to entice people to buy from you..
Segmented Pricing
• Charging different segments different prices
1. time based - “early-bird” specials, matinees2. seasonal - Caribbean cruises are less expensive in June than they
are in December3. location based - football seats on the fifty yard line will cost more than
seats that are not as good4. demographic basis ( senior citizen, student discounts, kid
pricing)
Pricing no-no’ s
• Price fixing (competitors to get together and agree on prices) is never legal
• Predatory pricing issues - pricing below cost to drive competitors out of the market
• Dumping - pricing of exports to other countries extremely low