CHAPTER 14: DEVELOPING PRICING STRATERGY AND PROGRAM.

INTRODUCTION:
 Price produces ‘revenue’; other elements produce ‘cost’.  Price is the easiest element of marketing.  Price communicates to the market the company’s intended value positioning of its product or brand  To reap profits products should beo Well designed o Well marketed

(eg. Gillette- corporate owner P&G:  Excellent in innovations like the ‘safety razor’ by King C. Gillette – 1901; latest ‘six blade fusion’ – Jan 2006.  Spend $1.2mil on research and development.  Enjoys 70% of the market leadership worldwide.  All this adds on to sustained profitability to corporate owner.)

. tuition.  Non price factors also hold importance.  Rent.  Price comes in many forms and performs many functions. etc are what consumers pay for some goods and services. fares.  Competitive pressure give rise to heavy discount and sales promotion. Important for holistic marketers to take into accounto Company o Customers o Competition o Marketing  Pricing decisions must be consistent witho Firm’s marketing strategy o Target markets o Brand positioning  UNDERTSANDING PRICING:  PRICE – major determinant of the buyer’s choice.

)  Internet is partially reversing the fixed pricing trend. CHANGING PRICING ENVIRONMENT:  Significant changes in price practices in recent years. (eg. o Negotiate price in outline auction and exchanges.  Buyers can: o Get instant price comparisons from thousands of renders. LG acquired ‘aspirational position’ by introducing a wide range of ‘ differentiated products’. o Get products free.  Sellers can: o Monitor customer behavior and tailors offers to individuals. o Name their price and have it met. o Give certain customers access to special prices. .  Low price trends makes consumers buy expensive products with the help of engaging marketing campaigns.

(eg.  In industries – companies set pricing department.marketing.pricing is set by boss.  Others who influence on priceo Sales managers o Production managers o Finance managers o Accountants  Its important to set price independently for the rest of the marketing mix. GE is responding by making pricing one of its top three initiatives and instituting a wholesale set of changes:  A matrix organization dedicated to pricing has been created.  In big companies. o This department reports to. HOEW COMPANIES PRICE:  In small companies. financial or top management department.pricing handled by divisions and product managers. .

.  Within large business units.  A Global Pricing Council.  Dedicated pricing managers focus on product pricing. reporting to the CEO. The CMO. made up of pricing leaders from each GE business unit. and in each business unit there is generally a VP or Director of pricing reporting to the head of marketing. leads the pricing initiatives. specialized Industry Pricing Councils cater to unique industry needs.  Pricing has been added to the GE executive education curriculum and is a mandatory initiative for the Commercial Excellence Councils of Top 100 GE executives.)  Guidelines fir a successful Freemium Strategy: o Have a product or service that truly stands out. is looking for best pricing practices across GE and seeding them throughout the organization. o Know your up-selling plan from the beginning.

o Timing is everything. o Harness the collective intelligence of your users.  Marketers recognize: o Consumers process price information.  CONSUMER PSYCOLOGY AND PRICING:  Consumers are price takers and accept prices at ‘face value” or as given. don’t change your mind. o Access to your product should be just one click away.o Once you’ve decided that a product will be given away for free. o Make sure that the major bugs have been exterminated. o Keep improving the product to give users more reasons to stick with it. . o Identify a range of revenue sources. o Interpreting price in terms of their knowledge.

 Purchase decision based on how consumers perceive price and what they consider the current actual price to be – not the marketer’s stated price. (eg.o Formal communication (ads. family.)  3 KEY TOPICS: .Three clothing brands:  Three of them produce black t-shirts with a wide difference in price. Armani . Gap.  Other two brands produce cotton t-shirts and sold at a lower cost indicating that the target audience is the ‘middle class. etc) o Informal communication (friends. sales calls. H&M.  Though Armani produces t-shirt which is not made up of cotton yet the high price focusing on the premium class of people and defining it as a luxury brand with limited edition. etc) o Point-of-purchase or online resources and other factors.

 Possible consumer reference prices: o ‘Fair price’ o Typical price o Last price paid o Upper-bound price o Lower-bound price o Expected future price o Usual discount price  Sellers manipulate the reference price. REFERENCE PRICES:  Research shows that consumers have fairly good knowledge of range of price.  Consumer refer to ‘regular retail price’ for reference.  Few can recall specific price of a product. Consumer electronics Product price differs among retailers and items like electronics. (eg. consumers are largest. .  When examining product consumers often refer price.

 Some brands adopt exclusivity and scarcity as a means to signify uniqueness and justify premium pricing.)  With frames of reference.  However a reference price makes people see they are getting something of value for less than top price.  ‘unpleasant surprises’ can have a greater impact purchase expectation than pleasant surprise. .  PRICE QUALITY INTERFERENCE:  Consumer use price as an indicator of quality. can try to frame the price to signal the best value possible. perceived price can vary from stated price. Ebay. Clever marketers eg. Consumers are made to believe that they are getting 20% or 30% or 40% off.  Consumer expectation – important role in price response.

demand may actually increase with higher price as they may feel that few customers will be able to afford to purchase it.  However with the new addiction of a new generation of people purchasing Tiffany products. Yet the brand continues to perform well.  Tried to brand its appeal to the younger generation with silver products. customers feel that Tiffany is ‘not special. (eg.:  Known for diamonds and luxury.  Expanded to new cities and shopping malls.  Link between price and quality made tiffany special. anymore.)  PRICE CUES:  Customer perception of price is affected by all pricing strategy. For the luxury goods customer who desires uniqueness. . yet they must safeguard the ‘premium image’. Tiffany & Co.

 If companies want a higher price image. like $299. ‘9’ conveys the notion of a discount or bargain.$399.  MARKETING INSIGHTS: .  Total category of sales is higher when few category has sale. sellers feel. it should avoid odd ending tactics. etc  Customer process price in a ‘left to right’ manner.  Limited availability (eg 3days only) also can increase sales among consumers actively shopping for a product.price should end in an odd no.  No.

 Only Boeing jets are flown to reduce maintenance and flight crew buy their own uniforms.  Passengers pay extra for everything right from snacks.  Myspace online community. Vodafone on the air craft. etc achieved some success with a “freemium” strategy. .has achieved because of its revolutionary business model.  Eg RYANAIR AIR CARRIER. baggage to water. etc  98% tickets are sold online along with other offer which the web sites provides.  Freemium strategy Is also available off line as well.seats don’t recline.  Flight attendants sell a variety of merchandise. window shades and seat back pockets have been removed.  Features like.  Ryanair’s seats are free. skype community. Sampling has been successful marketing tactics for years. poster of companies like jaguar. passengers pay only the taxes and fees.

 Other airlines are modifying themselves. keeping in mind the new strategy adopted by Michael O’Leary ( founder of Ryanair ) .

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