chapter 16kisi.deu.edu.tr/banu.atrek/mba 5011 strategic marketing management... · skimming....

Copyright © 2016 Pearson Education Ltd. 16-1

Chapter 16

Developing Pricing Strategies and

Programs


Understanding Pricing

• Pricing in a digital world

Get instant vendor price comparisons Check prices at the point of purchase Name your price and have it met Get products free Monitor customer behavior & tailor offers Give customers access to special prices Negotiate prices online or even in person



• A changing pricing environment

– Sharing economy

– Bartering

– Renting


SHARING ECONOMY

• Time banking– https://www.youtube.com/watch?v=Lgq5seXb

21M• Co-Working Spaces

– https://www.youtube.com/watch?v=FKG-Jaqp3KQ

• Food Sharing– EatWith

https://www.youtube.com/watch?v=Lgq5seXb21M

https://www.youtube.com/watch?v=FKG-Jaqp3KQ



• How companies price– Small companies: boss– Large companies: division/product line

managers• How companies should price

– Understanding of consumer pricing psychology

– a systematic approach to setting, adapting, and changing prices


Consumer Psychology and Pricing

Reference prices

Price-quality inferences

Price endings


Reference Prices


Setting the Price


Step 1: Selecting the Pricing Objective

Survival Maximum current profit

Maximum market share

Maximum market

skimming

Product-quality leadership

Other objectives


Step 2:Determining Demand

• Price sensitivity• Estimating demand

curves– Surveys, price

experiments, & statistical analysis

• Price elasticity of demand


Figure 16.1Inelastic And Elastic Demand


Price Sensitivity


Step 3: Estimating Costs

• Types of costs and levels of production– Fixed vs. variable costs– Total costs– Average cost



• Accumulated production– Experience/learning curve



• Target costing– Price less desired profit margin


Step 4: Analyzing Competitors’ Prices

• Firm must take competitors’ costs, prices, & reactions into account– Value-priced competitors


Step 5: Selecting a Pricing Method

• Figure 16.4: three major considerations in price– Costs = price floor– Competitors’ prices =

orienting point– Customers’ assessment of

unique features = price ceiling



• Markup pricing– Add a standard markup to the product’s cost



• Target-return pricing– Price that yields its target rate of return on

investment



• Perceived-value pricing– Based on buyer’s image of product, channel

deliverables, warranty quality, customer support, and softer attributes (e.g., reputation)



• Value pricing• EDLP

– High-low pricing• Going-rate pricing



English (ascending)

Dutch (descending)

Sealed-bid

• Auction-type pricing


Step 6: Selecting the Final Price

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

• Additional factors to select final price:


IMPACT OF OTHER MARKETING ACTIVITIES


Adapting the Price

• Geographical pricing– Barter : no money, no 3rd party– Compensation deal: % cash, rest in products– Buyback arrangement: plant, equipment,

technology, accepts partial payment with products

– Offset: seller receives full cash, has to spend an amount in that country


Adapting the Price• Price discounts and allowances


Adapting the Price

• Loss-leader pricing: Supermarkets and department stores often drop the price on well-known brands to stimulate additional store traffic. This pays if the revenue on the additional sales compensates for the lower margins on the loss-leader items.

• Special event pricing: Sellers will establish special prices in certain seasons to draw in more customers

• Special customer pricing: Sellers will offer special prices exclusively to certain customers

• Promotional pricing:


• Low-interest financing: Instead of cutting its price, the company can offer low-interest financing

• Longer payment terms• Warranties/service contracts: adding a free or low-cost

warranty or service contract

• Psychological discounting: This strategy sets an artificially high price and then offers the product at substantial savings


Adapting the Price

• Price discrimination

Customer-segment pricing

Product-form pricing

Image pricing

Channel pricing

Location pricing

Time pricing


Adapting the Price

• Price discrimination– Yield pricing


Initiating and Responding to Price Changes

• Initiating price cuts– Excess plant capacity– Domination of market

• Price-cutting traps– Low-quality – image?– Fragile market share – loyalty?– Shallow pockets- high priced competitor?– Price war



• Initiating price increases

Delayed quotation pricing long lead times

Escalator clauses- inflation

Unbundling Reduction of discounts



• Anticipating competitive responses

• Responding to competitors’ price changes

chapter 16kisi.deu.edu.tr/banu.atrek/mba 5011 strategic marketing management... · skimming....

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