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11/14/2011 1 Principles of Marketing Chapter 21 SETTING PRICES Establishing Prices 1 • Development of Pricing Objectives 2 • Assessment of target market’s evaluation of price 3 • Evaluation of competitor’s prices 4 • Selection of a basis for pricing 5 • Selection of a pricing strategy 6 • Determination of a specific price Price Objectives Survival Survival Profit Profit ROI ROI Market Market Share Share Cash Flow Cash Flow Status Status Quo Quo Quality Quality Perception Perception

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11/14/2011

1

Principles of Marketing

Chapter 21

SETTING PRICES

Establishing Prices

1• Development of Pricing Objectives

2• Assessment of target market’s evaluation of price

3• Evaluation of competitor’s prices

4• Selection of a basis for pricing

5• Selection of a pricing strategy

6• Determination of a specific price

Price Objectives

SurvivalSurvival ProfitProfit ROIROI

Market Market ShareShare

Cash FlowCash FlowStatus Status QuoQuo

Quality Quality PerceptionPerception

11/14/2011

2

Markets’ view of price

VALUEVALUE

Target Target marketmarket

Evaluation of competitor strategies

� Easiest for consumer products-

� Watch ads

� Secret shoppers

� B2B

� More difficult- especially in competitive situations

� Includes between intermediaries

Basis for pricing

Pricing

Cost- Based

Cost-plusMarkup Pricing

% of cost% of selling

price

Demand-Based

Competition-Based

11/14/2011

3

Determining a pricing strategy

Differential

New-Product

Product-Line

Psychological

Professional

Promotional

DifferentialDifferential

� Negotiated� Bargaining – Haggling (used internationally)� Vehicle or large equipment sales

� Secondary-market pricing� Movie tickets, restaurants, personal care� Seniors, children, “first 50”, time period

� Periodic discounting

� Random discounting� Specific items (often to lure into store)� Tensile- use of broad statement often using percentages

NewNew--productproduct

• Highest price possible

• Faster return on investmentSkimming

• Price is not a decision factor

• Substitutes are prevalentNeutral

• Want to gain market share

• Lowest price possible based on costsPenetration

Impacted by costs, customers and competitionImpacted by costs, customers and competition

11/14/2011

4

Product LineProduct Line

� Captive pricing

� Premium pricing

� Bait pricing

� Advertise lower quality product at low price and then consumer purchases a better quality product for more.

� Price lining

PsychologicalPsychological PricingPricing

� Reference pricing

� Comparison to more expensive offering

� Bundle pricing

� Value meals at “fast-food” restaurants

� Multiple- unit pricing

� Everyday low prices

� Odd-even pricing

� Customary pricing

� Prestige pricing

ProfessionalProfessional PricingPricing

� “Ethical Basis”� Attorney fees

� Consultants

� Medical

� Architects

� Web-designers

� Various methods� By the hour

� For a project

� Contingency percentage

11/14/2011

5

Promotional PricingPromotional Pricing

Price Leaders

Special-event

Comparison Discounting

Specific price chosen

� Should align with strategies

� May need adjustment

� Has impact on

� Profits

� Image

� Other marketing mix elements