Last Session’s Highlights

Ø How can a firm develop and establish an effective

positioning in the market?
Ø How do marketers identify and analyze competition?
Ø How are brands successfully differentiated?
Ø What are the differences in positioning and branding with
a small business?
Today’s Session
Ø How do consumers process and evaluate prices?
Ø How should a company set prices initially for products or services?
Ø How should a company adapt prices to meet varying circumstances
and opportunities?
Ø When should a company initiate a price change?
Ø How should a company respond to a competitor’s price change?
Developing Pricing (Strategies and Programs)
• Price is the one element of the marketing mix that produces revenue; the
other elements produce costs
• Pricing decisions are clearly complex and difficult, and many marketers
neglect their pricing strategies

The company The customer

Factors in making
pricing decision

The marketing
The competition
environment
Tiffany & Co. – Pricing defined Positioning
• Back in the 1830s, prices were rarely a fixed thing. Many stores and
vendors were open to bargaining with customers, and price was
generally a subjective, negotiable term. Tiffany didn’t accept this.
They realized that if they wanted brand dominance and to establish
themselves as a leader in the jewelry industry, they had to do
something different from the other companies.
• Thus, rather than following the norm and trying to copy the success
of existing companies, Tiffany decided to blaze its own trail.
• In the 1830s Tiffany made a bold move that was unseen prior to
that. Tiffany decided to mark prices clearly on all of their goods and
products. No negotiating, no bargaining, no haggling. You would
pay the price of the product, or you would leave the store. In doing
this, Tiffany insisted that their products were of high quality. Thus,
word spread and Tiffany became known as having expensive (and
equally) high quality jewelry. This value wasn’t intrinsic; Tiffany
created this value literally by putting price tags on their items.
That’s all it took.
• In addition, Tiffany broke another norm by only accepting cash
payments. While many jewelry stores accepted payment on credit,
for Tiffany it was cash only. In doing so, Tiffany further branded
itself as a classy jewelry store that wouldn’t settle for anything less
than the high price it demanded for its items. While this may have
cost Tiffany some money and a few customers early on, as time
went on and word spread, Tiffany began to attract the wealthiest
customers in the city who wanted to buy the fanciest and highest-
quality jewelry.
A Changing Pricing Environment
For some years now, the Internet has been changing how buyers and sellers
interact
• Buyers can:
• Get instant price comparisons from thousands of vendors.
• Name their price and have it met.
• Get products free.
• Sellers can:
• Monitor customer behavior and tailor offers to individuals.
• Give certain customers access to special prices
• Negotiate prices in online auctions and exchanges or even in person
New-Product Pricing Strategies
Market skimming pricing is a strategy with high initial prices to “skim” revenues
layer-by-layer from the market.
• Product quality and image must support the price.
• Buyers must want the product at the price.
• The costs of producing a smaller volume cannot be so high that they cancel the advantage of
higher prices.
• Competitors should not be able to enter the market easily and undercut the high price.

Market penetration pricing sets a low initial price in order to penetrate the
market quickly and deeply to attract a large number of buyers quickly to gain
market share.
• Price sensitive market
• Production and distribution costs must fall as sales volume increases
• Low prices must keep competition out of the market.
Reference Prices
When examining products, customers often employ reference prices,
comparing an observed price to an internal reference price they
remember or an external frame of reference such as a posted “regular
retail price.”
Price-Quality Inference
Price Cues
Many sellers believe prices should end in an odd number. Customers see an
item priced at $299 as being in the $200 rather than the $300 range
Objectives Should Guide Strategy Planning for Price
Objectives Should Guide Strategy Planning for Price
Objectives Should Guide Strategy Planning for Price
Geographical Pricing (Cash, Countertrade,
Barter)
• Barter—buyer and seller directly exchange goods, with no money and no third
party involved
• Compensation deal—seller receives some % of the payment in cash and the rest
in products (e.g., British Aircraft manufacturer sold plans to Brazil for 70% cash
and 30% coffee)
• Buyback arrangement—seller sells a plant, equipment, or technology to another
country and agrees to accept as partial payment products that are manufactured
with the supplied equipment (e.g., U.S. Chemical plant built for Indian Company
and accepted partial payment in chemicals produced)
• Offset—seller receives full payment in cash but agrees to spend a substantial
amount of the money in that country within a stated time period (e.g., PepsiCo
sells syrup to Russia for rubles and buy vodka at a certain rate for sales in the
United States)
THANK YOU

Congratulations ! We are through with the course …