YPRIMAR CHAPTER 6: PRICING DECISIONS DEVELOPMENT OF PRICING OBJECTIVES OBJECTIVE POSSIBLE ACTION Survival Adjust price levels so the

e firm can increase sales volume to match organizational expenses Profit Identify price and cost levels that allow the firm to maximize profit Return on Identify price levels that enable the firm to yield investment targeted ROI Market share Adjust price levels so the firm can maintain or increase sales relative to competitors sales Cash flow Set price levels to encourage rapid sales Status quo Identify price levels that help stabilize demand and sales Product quality Set prices to recover research and development expenditures and establish a high-quality image Pricing objectives goals that describe what a firm wants to achieve through pricing Product quality pricing objective set prices to recover research and development expenditures and establish a high-quality image ASSESSMENT OF THE TARGET MARKETS EVALUATION OF PRICE The importance of price depends on the type of product, the type of target market, and the purchase situation Price also depends on the perception of value, which is a combination of price and quality attributes EVALUATION OF COMPETITORS PRICES In competitive situations, marketers must keep prices the same as, or lower than, competitors prices In some instances, an organizations prices are designed to be slightly above competitors prices to give its products an exclusive image, or below competitors to generate a low-cost image SELECTION OF A BASIS FOR PRICING A. Cost-based pricing adding a dollar amount or percentage to the cost of the product Cost-plus pricing adding a specific dollar amount or percentage to the sellers cost Markup pricing adding to the cost of the product a predetermined percentage of that cost Markup a predetermined percentage of the cost B. Demand-based pricing based on the level of demand for the product C. Competition-based pricing influenced primarily by competitors prices COMMON PRICING STRATEGIES: A. Differential pricing charging different prices to different buyers for the same quality and quantity of product Negotiated pricing establishing a final price through bargaining between seller and customer Secondary-market pricing setting one price for the primary target market and a different price for another market Periodic discounting temporary reduction of prices on a patterned or systematic basis Random discounting temporary reduction of prices on an unsystematic basis Tensile pricing refers to a broad statement about price reductions as opposed to detailing specific price discounts Source: Marketing, 2013 ed. (Ferrell, Hult, & Pride) v3.0 B. New-product pricing Price skimming charging the highest possible price that buyers who most desire the product will pay Penetration pricing setting prices below those of competing brands to penetrate a market and gain a significant market share quickly C. Product-Line pricing establishing and adjusting prices of multiple products within a product line Captive pricing pricing the basic product in a product line low while pricing related items at a higher level Premium pricing pricing the highest-quality or most versatile products higher than other models in the product line Bait pricing pricing an item in the product line low with the intention of selling a higher-priced item in the line Bait and switch is an activity in which retailers have no intention of selling the bait product; they use the low price merely to entice customers into the store to sell them higher-priced products Price lining setting a limited number of prices for selected groups or lines of merchandise D. Psychological pricing pricing that attempts to influence a customers perception of price to make a products price more attractive Reference pricing pricing a product at a moderate level and displaying it next to a more expensive model or brand Bundle pricing packaging together two or more complementary products and selling them for a single price Multiple-unit pricing packaging together two or more identical products and selling them at a single price Everyday low prices (EDLP) setting a low price for products on a consistent basis Odd-even pricing ending the price with certain numbers to influence buyers perceptions of the price or product Customary pricing pricing on the basis of tradition Prestige pricing setting prices at an artificially high level to convey prestige or a quality image E. Professional pricing fees set by people with great skill or experience in a particular field F. Promotional pricing Price leaders product priced below the usual markup, near cost, or below cost Special-event pricing advertised sales or price cutting linked to a holiday, season or event Comparison discounting setting a price at a specific level and comparing it with a higher price DETERMINATION OF A SPECIFIC PRICE A flexible and convenient way to adjust the marketing mix To set the final price, it is important for marketers to: 1. Establish pricing objectives 2. Have considerable knowledge about target-market customers 3. Determine demand, price elasticity, costs, and competitive factors

Prepared by: Acidera, Jaypaul O.