CHAPTER 13

Pricing Decisions  An organization usually considers multiple dimensions

 Type of product
 Market structure of the industry
Stages for Establishing Prices  Brand’s market share position relative to competing
1 Development of pricing objectives brands
2 Assessment of target market’s evaluation of price  Customer characteristics
3 Evaluation of competitor’s prices
4 Selection of a basis for pricing Cost-Based Pricing
5 Selection of a pricing strategy  Adding a dollar amount or percentage to the cost of the
6 Determination of a specific price product

Development of Pricing Objectives Cost-Plus Pricing

 Step one of the price-setting process  Determine the seller’s cost and add a specified dollar to it
 Goals that describe what a firm wants to achieve through  Is used when production costs are difficult to predict
pricing
 Should be consistent with organizational and marketing Markup Pricing
objectives  Adding a predetermined percentage of the cost to the price of
 Can be short- or long-term and marketers can employ multiple the product
pricing objectives  Markup can be stated as a percentage of cost of making the
product or a percentage of selling price
Pricing Objectives & Typical Actions Taken to Achieve Them
 Survival: Adjust price levels so the firm can increase sales
volume to match organizational expenses
 Profit: Identify price and cost levels that allow the firm to
maximize profit
 Return on investment: Identify price levels that enable firm to Demand-Based Pricing
yield targeted ROI  Customers pay a higher price when demand for the product is
 Market share: Adjust price levels so the firm can maintain or strong and a lower price when demand is weak
increase sales relative to competitors’ sales  Marketers must be able to calculate how much customers will
 Cash flow: Set price levels to encourage rapid sales buy at different price points
 Status quo: Identify price levels that help stabilize demand and
sales Non-Price Factors Affecting Demand
 Product quality: Set prices to recover research and Market
development expenditures and establish a high-quality image  Degree of competition
 Competitor action/reaction
Assessment of the Target Market’s Evaluation of Price  General economic conditions
 The second step in the price-setting process Product
 Importance of price depends on:  Quality
 Type of product  Range
 Type of target market  Nature-essential/luxury
 Purchase situation  Substitutes
 Value combines a product’s price and quality attributes Support
 Customers use value to differentiate between  Service at point of sale and after
competing brands  Advertising/promotion
 Distribution Methods
Evaluation of Competitors’ Prices
 The third step in the price-setting process Competition-Based Pricing
 Marketers should use competitors’ prices to help them  Pricing influenced by competitors’ prices
establish their own prices  Importance of this method increases when:
• Competitors’ prices may be closely guarded  Competing products are homogeneous
 Pricing above competition creates an exclusive image  Organization is serving markets in which price
 Pricing below competition can increase market share is a key consideration
 May necessitate frequent price adjustments
Selection of a Basis for Pricing
 The fourth step in the price-setting process Selection of a Pricing Strategy
 The three major dimensions on which prices can be based are: Common Pricing Strategies
 Cost Differential Pricing
 Demand  Negotiated pricing
 Competition  Secondary-market pricing
  Periodic discounting
 Random Discounting
New Product Pricing Psychological Pricing Techniques
 Price Skimming Attempts to influence a customer’s perception of price to make the
 Penetration Pricing product’s price more attractive
 Reference Pricing: Positioning a moderately priced item next to
Product Line Pricing a more expensive brand to make it seem lower in price
 Captive Pricing  Bundle Pricing: Packaging complementary products to be sold
 Premium Pricing at a single price
 Bait Pricing  Multiple-Unit Pricing: Packaging together two or more identical
 Price lining products to be sold at a single price
 Everyday Low Prices (EDLP): Setting a low price on products on
Psychological Pricing a consistent basis
 Reference Pricing  Odd-Even Pricing: Ending the price with certain numbers that
 Bundle Pricing influence buyers’ perceptions of the price
 Multiple Unit Pricing  Customary Pricing: Pricing certain goods on the basis of
 Everyday Low Prices tradition
 Prestige Pricing: Setting prices at an artificially high level to
 Odd-Even Pricing
convey prestige or high quality
 Prestige Pricing
 Customary Pricing
Professional Pricing
 Used by people with great skill or experience in a field or
Professional Pricing
activity
• Professional prices do not relate to the time or effort
Promotional Pricing
expended
 Price leaders
• A standard fee
 Special-event Pricing
 Professionals have an ethical responsibility not to overcharge
 Comaparison Discounting
customers
Differential Pricing
Promotional Pricing
Charging different prices to different buyers for the same quality and
Price is often coordinated with promotion
quantity of product
 Price Leader: Products priced below the usual markup, near
 Negotiated Pricing: Final price established through buyer/seller
cost, or below cost (management hopes sales of regularly
bargaining
priced merchandise will offset the reduced revenues from the
 Secondary-Market Pricing: One price for primary target market
price leaders)
and a different price for another market
 Special-Event Pricing: Advertised sales or price-cutting is used
 Periodic Discounting Pricing: Systematic or patterns temporary
to increase sales volume and is linked to a holiday, a season, or
price reductions
other event
 Random Discounting Pricing: Unsystematic temporary price
 Comparison Discounting: The pricing of a product at a specific
reductions
level and simultaneously comparing it to a higher price
New-Product Pricing
Determination of Price: Pricing Strategy
Setting the price for new products is one of the most fundamental
The final step in the price-setting process
decisions in the marketing mix
 Pricing Strategy
 Price Skimming: Charging the highest possible price that buyers
• Yields a certain price, which may need refining
who most desire the product will pay
• Helps in setting final price
 Penetration Pricing: Setting the price below competing brands
• In absence of government controls, pricing remains
to penetrate a market and gain market share quickly
flexible and a convenient way to adjust the market
mix
Product-Line Pricing Strategies
Establishing and adjusting prices of multiple products within a
product line and The goal is to maximize profits for an entire product
line
 Captive Pricing: Basic product in a product line is priced low
while required related items are priced higher
 Premium Pricing: Giving the highest-quality products a line the
highest prices
 Bait Pricing: Low pricing on one item in a line with the intention
of selling higher-priced items in the line
 Price Lining: Limited the number of prices for selected lines of
merchandise