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Chapter 12 - On Pricing Products, Pricing Considerations, Approaches, And Strategy

Chapter 12 - On Pricing Products, Pricing Considerations, Approaches, And Strategy

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Published by: charisma_dim4581 on Oct 01, 2009
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01/14/2013

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Chapter 12On Pricing Products: Pricing Considerations, Approaches, and Strategy
“The real issue is value, not price.” – Robert T. LindgrenOutline:I.PriceII.Factors to Consider when Setting Pricesa.Internal Factors Influencing Pricing Decisionsb.External Factors Affecting Pricing Decisionsc.CompetitorsPrices and Offersd.Other External ElementsIII.General Pricing Approachesa.Cost-Based Pricingb.Break-Even Analysis and Target Profit Pricingc.Value-Based Pricingd.Competition-Based PricingIV.Pricing Strategiesa.New Product Pricing Strategiesb.Existing-Product Pricing Strategiesc.Psychological Pricingd.Promotional PricingV.Other Pricing Considerationsa.Price Spread Effectb.Price PointsVI.Price Changesa.Initiating Price Changesb.Initiating Price Cutsc.Initiating Price Increasesd.Buyer Reactions to Price Changese.Competitor Reactions to Price Changesf.Trade Ally Reactions to Price Changesg.Responding to Price Changes
I.Price
-It is the only marketing mix element that produces revenue.-It is the amount of money charged for a good or service.-It is the sum of the values consumers exchange for the benefits of havingor using the product or service.Pricing-It is the least understood of the marketing variables.-Changes are often a quick fix made without proper analysis.Most common mistakes in pricing:
 
1.It is too cost oriented.2.It is not revised to reflect market changes.3.It does not take the rest of the marketing mix into account.4.It is not varied enough for different product items and marketsegments.5.Charging too much (chases away potential customers).6.Charging too little (leaves a company without enough revenue tomaintain the operation properly).
II.Factors to Consider When Setting Prices
a.Internal Factors Influencing Pricing Decisions
1.Marketing Objectives
The firm’s pricing objectives must be identified in order to determine the optimal pricing.Common objectives include the following:
*Survival
- in situations such as market decline and overcapacity, the goal may be to selecta price that will cover costs and permit the firm to remain in the market. In this case,survival may take priority over profits, so this objective is considered temporary.
*Current Profit Maximization
 
PricingMarket TargetingMarket PositioningObjectives:*Survival*Current ProfitMaximization*Market-ShareLeadership*Brand Equity Growth 
 
- seeks to maximize current profit, taking into account revenue and costs.Current profit maximization may not be the best objective if it results in lower long-termprofits.
*Market-Share Leadership
- set low price to gain large market share (market penetration)- companies with this objective believe that gaining the largest market share willeventually lead to low costs and high long-rung profits.
*Brand Equity Growth
- seeks to increase a brand’s value (high brand-name awareness; maintain afavorable brand image, perceive that the brand is of high quality; increase loyalty to thebrand)- a strong brand equity helps companies earn a price premium and increasesales volume.Brand equity – is the summation of all associations that consumer have with a brand –including communication, product benefits, emotional benefits and experiential benefits.
*Product-Quality Leadership
- use price to signal high quality in an attempt to position the product as thequality leader.
*Other Objectives
- create barriers to entry, temporarily create excitement for a new product, tostabilize market, etc.
2.Marketing Mix Strategy
Price must be coordinated with product design, distribution, and promotion decisions toform a consistent and effective marketing program.
3.Costs
-Sets the floor for the price a company can charge for its product.
PricingMarket TargetingMarket PositioningObjectives:*Survival*Current ProfitMaximization*Market-ShareLeadership*Brand Equity Growth PlaceProductPromotion

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