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.)

 Price comes in many forms and performs many functions. . tuition.  Non price factors also hold importance.  Competitive pressure give rise to heavy discount and sales promotion. fares. etc are what consumers pay for some goods and services.  Rent. 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.

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

 In industries – companies set pricing department. . o This department reports to.pricing handled by divisions and product managers. 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.pricing is set by boss.  In big companies.  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. (eg.marketing. financial or top management department. HOEW COMPANIES PRICE:  In small companies.

made up of pricing leaders from each GE business unit.  Within large business units. o Know your up-selling plan from the beginning. The CMO. reporting to the CEO. and in each business unit there is generally a VP or Director of pricing reporting to the head of marketing.  Dedicated pricing managers focus on product pricing. .  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. specialized Industry Pricing Councils cater to unique industry needs.)  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.  A Global Pricing Council. leads the pricing initiatives.

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

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

 REFERENCE PRICES:  Research shows that consumers have fairly good knowledge of range of price.  When examining product consumers often refer price. . consumers are largest. (eg. Consumer electronics Product price differs among retailers and items like electronics.  Few can recall specific price of a product.  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.  Consumer refer to ‘regular retail price’ for reference.

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

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

 No. sellers feel. ‘9’ conveys the notion of a discount or bargain.  MARKETING INSIGHTS: .  Total category of sales is higher when few category has sale.  If companies want a higher price image. like $299. it should avoid odd ending tactics.$399. 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.

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

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

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