A FRAMEWORK for

MARKETING MANAGEMENT

Developing
Pricing Strategies
and Programs

Kotler Keller
 How Companies Price

• Small companies prices are set by

boss.
• Large companies prices are handled
by division and product line managers.
• Top management set general pricing
objectives and policies and approves
the prices proposed by lower levels of
managements.
12-2
 Consumer Psychology and Pricing

• Reference prices: In considering price

consumers often compare it to an
international reference price or an external
frame of reference.
• Price-quality inferences: Many consumers
use price as an indicator of quality.
• Price cues: Consumer perceptions of prices
also affected by alternative pricing
strategies. $299 instead of $300 as a price
in the $200 range rather than $ 300 range.
12-3
 Steps in Setting Price Policy

1. Select the pricing objective

2. Determine demand
3. Estimate costs
4. Analyze competitor price mix
5. Select a pricing method
6. Select the final price

12-4
 Price-Adaptation Strategies

• Geographical pricing: In this company

decides how to price its products to
different customers in different
locations and countries.
• Discounts/allowances: Most companies
will adjust their list price and give
discounts and allowances for early
payment, volume purchases, and off
season buying. 12-5
 Promotional Pricing
• Loss-leader pricing: Price drop to stimulate
additional store traffic.
• Special-event pricing: special prices in
certain seasons to draw more customers.
• Cash rebates: Rebates help clear inventories
without cutting the stated list price.
• Low-interest financing: Automakers have
even announced no-interest to attarct
customers.
12-6
 Promotional Pricing

• Longer payment terms: loans over longer

periods thus lower the monthly payments.
Mortgage Banks and Auto companies.
• Warranties and service contracts: Promote
sale by adding a free or low cost warranty.
• Psychological discounting: setting an
artificially high price and then offering the
product at substantial savings. Example
$359, now $299.
12-7
 Differentiated Pricing and
Price Discrimination
Companies often adjust their basic price to
accommodate differences in customers,
products, locations, and so on.
• Customer-segment pricing: different
museums often charge lower admission
fee to students and senior citizens.
• Product-form pricing: different product are
priced differently but not to their respective
costs.
12-8
 Differentiated Pricing and
Price Discrimination
• Image Pricing: Pricing same product at two
different levels based on image differences.
• Channel Pricing: Coca-Cola carries different
price depending on whether it is purchased
in fine restaurant, fast food restaurant.
• Location Pricing: Same product is priced
differently at different locations. A theater
varies its seat prices according to audience
preferences for different locations.
12-9
 Differentiated Pricing and
Price Discrimination
Time Pricing: Prices are varied by season,
day or hour.
Public utilities vary energy rates to
commercial users by time of day and
weekday.
Restaurants charge less to early bird
customers.
Hotels charge less on weekends.

12-10
 Responding to Competitors Price
Changes
Market leaders face aggressive price cutting
by smaller firms trying to build market share.
• Maintain Price.
• Maintain Price & Add Value
• Reduce Price
• Increase Price & Improve Quality.
• Launch a Low Price fighter Line. (might add
lower priced items to the line or create a
separate lower priced brand).
12-11