PACE-IT: CE 2.4 - Product Services Offering and Pricing (part 1)
14 CE Chapter 14 - Developing Pricing Strategies
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Transcript of 14 CE Chapter 14 - Developing Pricing Strategies
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Developing Pricing Strategies and Programs
Marketing Management Canadian Fourteenth Edition
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Chapter Questions • How do consumers process and evaluate prices? • How should a company set prices initially for
products or services? • How should a company adapt prices to meet
varying circumstances and opportunities? • When should a company initiate a price change? • How should a company respond to a competitor’s
price challenge?
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Synonyms for Price
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Rent Tuition Fee Fare Rate Toll Premium Honorarium
Special assessment Bribe Dues Salary Commission Wage Tax
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A Changing Pricing Environment
The Internet Changes the Pricing Environment – By Providing Information
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A Changing Pricing Environment
• 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.
• Both buyers and sellers can negotiate prices in online auctions and exchanges or even in person.
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Common Pricing Mistakes • Determine costs and take traditional industry
margins • Failure to revise price to capitalize on market
changes • Setting price independently of the rest of the
marketing mix • Failure to vary price by product item, market
segment, distribution channels, and purchase occasion
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Consumer Psychology and Pricing
• Reference prices • Price-quality inferences • Price endings
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Table 14.1 Possible Consumer Reference Prices
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“Fair price” Typical price Last price paid Upper-bound price
Lower-bound price Competitor prices Expected future price Usual discounted
price
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Tiers in Pricing • A firm must decide where to position its product on
quality and price.
• Most markets have three to five price points or tiers.
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Steps in Setting Price • Select the price objective • Determine demand • Estimate costs • Analyze competitors’ costs, prices, and offers • Select pricing method • Select final price
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Step 1: Selecting the Pricing Objective
• Survival • Maximum current profit • Maximum market share • Maximum market skimming • Product-quality leadership
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Step 2: Determining Demand • Price sensitivity • Estimate demand curves • Price elasticity of demand
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Figure 14.1 Inelastic and Elastic Demand
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Table 14.3 Factors Leading to Less Price Sensitivity
• The product is more distinctive • Buyers are less aware of substitutes • Buyers cannot easily compare the quality of substitutes • Expenditure is a smaller part of buyer’s total income • Expenditure is small compared to the total cost • Part of the cost is paid by another party • Product is used with previously purchased assets • Product is assumed to have high quality and prestige • Buyers cannot store the product
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Step 3: Estimating Costs • Types of costs • Accumulated production • Target costing
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Figure 14.2 Cost Per Unit at Different Levels of Production
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Cost Terms and Production • Fixed costs • Variable costs • Total costs • Average cost • Cost at different levels of production
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Figure 14.3 Cost per Unit as a Function of Accumulated Production
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Target Costing • Costs change with production scale and
experience. • They can also change as a result of a concentrated
effort by designers, engineers, and purchasing agents to reduce them through target costing.
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Step 4: Analyzing Competitor’s Costs, Prices and Offers
• Within the range of possible prices determined by market demand and company costs, the firm must take competitors’ costs, prices, and possible price reactions into account.
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Figure 14.4 The Three Cs Model for Price-Setting
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Step 5: Selecting a Pricing Method
• Markup pricing • Target-return pricing • Perceived-value pricing • Value pricing • Going-rate pricing • Auction-type pricing
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Figure 14.5 Break-Even Chart for Determining Target-Return Price and Break-Even Volume
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Dollarama
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Auction-Type Pricing
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English
Dutch
Sealed-Bid
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Step 6: Selecting the Final Price
• Impact of other marketing activities • Company pricing policies • Gain-and-risk sharing pricing • Impact of price on other parties
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Geographical Pricing • Pricing varies by location
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Price Discounts and Allowances
• Discount • Quantity discount • Functional discount • Seasonal discount • Allowance
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Promotional Pricing Tactics • Loss-leader pricing • Special-event pricing • Cash rebates • Low-interest financing • Longer payment terms • Warranties and service contracts • Psychological discounting
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Differentiated Pricing • Customer-segment pricing • Product-form pricing • Image pricing • Channel pricing • Location pricing • Time pricing
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Traps in Price Cutting Strategies
• Low-quality trap • Fragile-market-share trap • Shallow-pockets trap • Price-war trap
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Table 14.6 Profits Before and After a Price Increase
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Methods for Increasing Prices • Delayed quotation pricing • Escalator clauses • Unbundling • Reduction of discounts
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Brand Leader Responses to Low-Cost Competitors
1. Further differentiate the product or service 2. Introduce a low-cost venture 3. Reinvent as a low-cost player.
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