MARKETING STRATEGY

O.C. FERRELL • MICHAEL D. HARTLINE

8
Pricing Strategy
 The Role of Pricing in
Marketing Strategy (1 of 2)
• The Seller’s Perspective on Pricing
• Four key issues:
– (1) Costs
– (2) Demand
– (3) Customer value
– (4) Competitors’ prices
• The Buyer’s Perspective on Pricing
– Two key issues:
• (1) Perceived value
• (2) Price sensitivity
8-2
 The Role of Pricing in
Marketing Strategy (2 of 2)
• A Shift in the Balance of Power
– Buyer’s market
• Large number of sellers in the market
• Many substitutes for the product
• Economy is weak
– Seller’s market
• Products are in short supply
• High demand
• Economy is strong
• The Relationship Between Price and Revenue
– Myth #1: When business is good, a price cut will
increase market share.
– Myth #2: When business is bad, a price cut will
stimulate sales. 8-3
 Major Determinants of
Pricing Strategy
• Pricing Objectives
• Supply and Demand
• The Firm’s Cost Structure
• Competition and Industry Structure
– Four basic competitive market structures:
• Pure Competition
• Monopolistic Competition
• Oligopoly
• Monopoly
• Stage of the Product Life Cycle
• Other Elements of the Marketing Mix
8-4
Regulated Utilities as Monopolies

8-5
Description of Common Pricing Objectives

Exhibit 8.1 8-6

Pricing Strategy Over the
Product Life Cycle

Exhibit 8.2 8-7

 Price Elasticity of Demand (1 of 2)

• Formula for calculating price elasticity:

• Situations That Increase Price Sensitivity

– Availability of product substitutes
– Higher total expenditure
– Noticeable differences
– Easy price comparison
8-8
Price Elasticity of Demand

Exhibit 8.3 8-9

 Price Elasticity of Demand (2 of 2)
• Situations That Decrease Price Sensitivity
– Real or perceived necessities
– Lack of product substitutes
– Complementary products
– Product differentiation
– Perceived product benefits
– Situational influences
• Price Elasticity and Yield Management
– Allows simultaneous control of capacity and demand
• Control capacity by limiting available capacity at
certain price points
• Control demand through price changes and
overbooking capacity
8-10
Yield Management for
a Hypothetical Model

Exhibit 8.4 8-11

 Discussion Question

• Discuss the variety of situational factors that

could come into play and impact elasticity
in the purchase of each of the following
products: a) sporting event or concert
tickets, b) staple goods such as milk, eggs,
or bread, c) an electric razor, d) eye surgery
to improve vision.

8-12
 Pricing Strategies (1 of 2)
• Base Pricing Strategies
– Price Skimming
– Penetration Pricing
– Prestige Pricing
– Value-Based Pricing (EDLP)
– Competitive Matching
– Non-Price Strategies
• Adjusting Prices in Consumer Markets
– Promotional Discounting
– Reference Pricing
– Odd-Even Pricing
– Price Bundling 8-13
 Marketing Strategy in Action

• Chrysler’s price skimming strategy for the Pacifica model has not
been successful in attracting customers. Why do you think the
$40,000 price tag has not been successful for the Pacifica? What
do you think Chrysler should do in rethinking its pricing strategy
for this model? 8-14
Price Bundling

8-15
 Pricing Strategies (2 of 2)
• Adjusting Prices in Business Markets
– Pricing techniques unique to business markets:
• Trade discounts
• Discounts and allowances
• Geographic pricing
• Transfer pricing
• Barter and countertrade
– Price discrimination

8-16
 Fixed vs. Negotiated Pricing

• Three pricing levels in a negotiated price situation:

– (1) Opening position
– (2) Aspiration price
– (3) Limit
• Guidelines for making concessions:
– Avoid being the first side to make a concession
– Start with modest concessions and make them smaller as
you proceed
– Avoid making concessions early in the negotiation
– Do not give up anything without something in return
8-17
 Discussion Question

• If you were trying to sell your used car

through the newspaper, what factors would
determine how you might set your opening
position, your aspiration price, and your
limit during the negotiation process?

8-18
Major Online Auction Strategies

Exhibit 8.5 8-19

Legal and Ethical Issues in Pricing

• Price Discrimination
• Price Fixing
• Predatory Pricing
• Deceptive Pricing

8-20
 Discussion Question

• One of the key decisions that managers

often make is to change prices that have
been set inappropriately. What issues
should be considered in deciding whether it
is the price that is wrong, or whether the
problem lies in another element of the
marketing mix?

8-21