13

Pricing
Strategies

Copyright © 2012 Pearson Education, Inc. Publishing as Prentice Hall 13-1

 CHAPTER OBJECTIVES
1. What are the roles of price and value in the
marketing mix? How do market structures, costs,
and demand affect prices?
2. What are the most important market factors
influencing pricing decisions?
3. How do marketers use pricing strategy and
pricing objectives to achieve their goals?
4. What procedures and strategies do marketers
use when making pricing decisions?

Copyright © 2012 Pearson Education, Inc. Publishing as Prentice Hall 13-2

 OBJECTIVE 1

What are the roles of price and

value in the marketing mix? How
do market structures, costs, and
demand affect prices?

Copyright © 2012 Pearson Education, Inc. Publishing as Prentice Hall 13-3

 A Price is the exchange value of a
D
E
F
I
N product or service in the marketplace.
E
D

Copyright © 2012 Pearson Education, Inc. Publishing as Prentice Hall 13-4

 VALUE
E
X
P
L
A
I
N Product
Value
E Benefits
D Value = Benefits – Costs
Service
Benefits Price &
Other
Costs

Brand
Benefits

Copyright © 2012 Pearson Education, Inc. Publishing as Prentice Hall 13-5

E
X
P
L Performance
A
I
N
E
D

Copyright © 2012 Pearson Education, Inc. Publishing as Prentice Hall 13-6

 ESTABLISHING PRICES
A
P
P
L
I
Price
E
D

Place Product

Promotion

Copyright © 2012 Pearson Education, Inc. Publishing as Prentice Hall 13-7

 MARKET STRUCTURE
A
Monopoly Oligopoly
P
P
L
I
E
D

Pure Competition

Monopolistic Competition
Copyright © 2012 Pearson Education, Inc. Publishing as Prentice Hall 13-8
 COST-BASED PRICING
A
P
P
L
I Profit Revenue Costs
E
D

Price x Units Sold

Fixed Costs + Variable Costs

Copyright © 2012 Pearson Education, Inc. Publishing as Prentice Hall 13-9

 COST-BASED PRICING
A
P
P
L
I
E
D

Copyright © 2012 Pearson Education, Inc. Publishing as Prentice Hall 13-10

 COST-PLUS PRICING
A
P For a product costing $12.00…
P
L Markup % on Margin on
Selling Price
I Cost Selling Price
E
D
11.0% 10% $13.33

17.6% 15% $14.12

25.0% 20% $15.00

33% 25% $16.00

42.8% 30% $17.14

Copyright © 2012 Pearson Education, Inc. Publishing as Prentice Hall 13-11

 BREAK-EVEN POINT
A Fixed Cost = $40k; Variable Cost = $5; Selling Price = $10
P
P
L
I
E
D

Copyright © 2012 Pearson Education, Inc. Publishing as Prentice Hall 13-12

 DETERMINATION OF DEMAND
A
P

Price
P
L
I
E
D $0.50

$0.25

$0.10

100K 200K 300K

Quantity

Copyright © 2012 Pearson Education, Inc. Publishing as Prentice Hall 13-13

 OBJECTIVE 2

What are the most important

market factors influencing
pricing decisions?

Copyright © 2012 Pearson Education, Inc. Publishing as Prentice Hall 13-14

D
E
Pricing Practices are considerations
F
I (such as legal requirements or bidding
N
E
D practices) that must be taken into
account when establishing a price for a
product or service.

Copyright © 2012 Pearson Education, Inc. Publishing as Prentice Hall 13-15

 PRICING PRACTICES
E
X
P
L
A
I
N
E
D

Copyright © 2012 Pearson Education, Inc. Publishing as Prentice Hall 13-16

 PRICE REDUCTION EFFECT
A
P
P .71¢
L .89¢
I 66%
E Increase
D

.69¢

Kenneth Wisniewski and Robert Blattberg at the University of Chicago's Center for Research in Marketing
222%
Increase

Copyright © 2012 Pearson Education, Inc. Publishing as Prentice Hall 13-17

 OBJECTIVES 3 & 4

How do marketers use pricing

strategy and pricing objectives to
achieve their goals?

What procedures and strategies

do marketers use when making
pricing decisions?
Copyright © 2012 Pearson Education, Inc. Publishing as Prentice Hall 13-18
 A Pricing Strategy identifies what
D
E
F
I
N a business will charge for its products
E
D or services.

Copyright © 2012 Pearson Education, Inc. Publishing as Prentice Hall 13-19

 PRICING OBJECTIVES
E
X
P
$ Profitability
L
A
I
N
E
$
D

$
Copyright © 2012 Pearson Education, Inc. Publishing as Prentice Hall 13-20
 PRICING STRATEGY
A
P
P
L
I
E
D

Copyright © 2012 Pearson Education, Inc. Publishing as Prentice Hall 13-21

 NEW PRODUCT PRICING
A
P
P
L
I
E
D

Skimming

Copyright © 2012 Pearson Education, Inc. Publishing as Prentice Hall 13-22

 NEW PRODUCT PRICING
A
P
P
L
I
E
D

Penetration

Copyright © 2012 Pearson Education, Inc. Publishing as Prentice Hall 13-23

 PRICING STRATEGIES
A
P
Storefront Tiered
P
L Pricing Pricing
I
E
D
Online Dynamic
Pricing Pricing

Auction
Pricing

Copyright © 2012 Pearson Education, Inc. Publishing as Prentice Hall 13-24

 PORTFOLIO PRICING
A Price
P ceiling $$$
P
L
I
E

brand/product line
D

Price range for

Product 3

Product 2

Product 1
Price
floor $ Customer’s willingness to pay
Copyright © 2012 Pearson Education, Inc. Publishing as Prentice Hall 13-25
 PRICE ADJUSTMENT STRATEGIES
A
P
P
L
I
E
D

Copyright © 2012 Pearson Education, Inc. Publishing as Prentice Hall 13-26

VISUAL SUMMARY

Copyright © 2012 Pearson Education, Inc. Publishing as Prentice Hall 13-27

 All rights reserved. No part of this publication may be reproduced, stored in a
retrieval system, or transmitted, in any form or by any means, electronic,
mechanical, photocopying, recording, or otherwise, without the prior written
permission of the publisher. Printed in the United States of America.

Copyright © 2012 Pearson Education, Inc. Publishing as Prentice Hall 13-28