14 Developing Pricing Strategies and Programs
-
Upload
tiger-gonzales -
Category
Documents
-
view
31 -
download
7
description
Transcript of 14 Developing Pricing Strategies and Programs
![Page 1: 14 Developing Pricing Strategies and Programs](https://reader035.fdocuments.us/reader035/viewer/2022062304/568135f2550346895d9d62a7/html5/thumbnails/1.jpg)
14Developing Pricing
Strategies and Programs
1
![Page 2: 14 Developing Pricing Strategies and Programs](https://reader035.fdocuments.us/reader035/viewer/2022062304/568135f2550346895d9d62a7/html5/thumbnails/2.jpg)
14-2
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?
![Page 3: 14 Developing Pricing Strategies and Programs](https://reader035.fdocuments.us/reader035/viewer/2022062304/568135f2550346895d9d62a7/html5/thumbnails/3.jpg)
14-3
Synonyms for Price
Rent Tuition Fee Fare Rate Toll Premium Honorarium
Special assessment Bribe Dues Salary Commission Wage Tax
![Page 4: 14 Developing Pricing Strategies and Programs](https://reader035.fdocuments.us/reader035/viewer/2022062304/568135f2550346895d9d62a7/html5/thumbnails/4.jpg)
Pricing Decisions are Creating Major Challenges for Many Companies
Examples Include:
1.Threats to major airlines by discount carriers.
2.Pressures on drug companies to reduce prices.
3.Intense price competition on supermarket chains.
4.Threats to strong brands by counterfeit products.
![Page 5: 14 Developing Pricing Strategies and Programs](https://reader035.fdocuments.us/reader035/viewer/2022062304/568135f2550346895d9d62a7/html5/thumbnails/5.jpg)
…requires that we put pricing at the beginning of
the process. For example, a multi-part marketing
strategy usually is required in value-based pricing.
Airlines’ complicated service packages with arcane
restrictions, and their multiple channels of
distribution must support pricing that reflects
different values of the service to different
segments. Without such a strategy, airlines would
capture a much smaller portion of the value they
have the potential to create.
T. Nagle, Marketing News, 11/9/98, 4.
STRATEGIC ROLE OF PRICE
![Page 6: 14 Developing Pricing Strategies and Programs](https://reader035.fdocuments.us/reader035/viewer/2022062304/568135f2550346895d9d62a7/html5/thumbnails/6.jpg)
STRATEGIC ROLE OF PRICE
‘”Part of the reason that pricing is misused and poorly understood is the common practice of making it the last marketing decision. We think that we must design products, communication plans, and a method of distribution before we have something to price. We then use pricing tactically to capture whatever value we can.”
![Page 7: 14 Developing Pricing Strategies and Programs](https://reader035.fdocuments.us/reader035/viewer/2022062304/568135f2550346895d9d62a7/html5/thumbnails/7.jpg)
14-7
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
![Page 8: 14 Developing Pricing Strategies and Programs](https://reader035.fdocuments.us/reader035/viewer/2022062304/568135f2550346895d9d62a7/html5/thumbnails/8.jpg)
14-8
Consumer Psychology and Pricing
Reference prices Price-quality inferences Price endings Price cues
![Page 9: 14 Developing Pricing Strategies and Programs](https://reader035.fdocuments.us/reader035/viewer/2022062304/568135f2550346895d9d62a7/html5/thumbnails/9.jpg)
14-9
Remembering vs Knowing Could you remember how much you last paid for a product
you purchase periodically?
Many consumers will not remember this information, yet they will judge the advertised or actual price of the product to be “too expensive”, “a great deal,” or “about average”.
We all “know” things for which we cannot recall the source or even the exact nature of our knowledge.
Remembering = memory, ability to recall the specific items ---- EXPLICIT MEMORY
Knowing = nonconscious retrieval of previously encountered stimuli --- IMPLICIT MEMORY
![Page 10: 14 Developing Pricing Strategies and Programs](https://reader035.fdocuments.us/reader035/viewer/2022062304/568135f2550346895d9d62a7/html5/thumbnails/10.jpg)
6-10
Mental Accounting
Consumers tend to…Segregate gains Integrate losses Integrate smaller losses with larger gainsSegregate small gains from large losses
![Page 11: 14 Developing Pricing Strategies and Programs](https://reader035.fdocuments.us/reader035/viewer/2022062304/568135f2550346895d9d62a7/html5/thumbnails/11.jpg)
14-11
Possible Consumer Reference Prices
“Fair price” Typical price Last price paid Upper-bound price
Lower-bound price Competitor prices Expected future price Usual discounted price
![Page 12: 14 Developing Pricing Strategies and Programs](https://reader035.fdocuments.us/reader035/viewer/2022062304/568135f2550346895d9d62a7/html5/thumbnails/12.jpg)
14-12
Consumer Perceptions vs. Reality for Cars
Overvalued Brands Land Rover Kia Volkswagen Volvo Mercedes
Undervalued Brands Mercury Infiniti Buick Lincoln Chrysler
![Page 13: 14 Developing Pricing Strategies and Programs](https://reader035.fdocuments.us/reader035/viewer/2022062304/568135f2550346895d9d62a7/html5/thumbnails/13.jpg)
14-13
Price Cues
“Left to right” pricing ($299 versus $300) Odd number discount perceptions Even number value perceptions Ending prices with 0 or 5 “Sale” written next to price
![Page 14: 14 Developing Pricing Strategies and Programs](https://reader035.fdocuments.us/reader035/viewer/2022062304/568135f2550346895d9d62a7/html5/thumbnails/14.jpg)
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
![Page 15: 14 Developing Pricing Strategies and Programs](https://reader035.fdocuments.us/reader035/viewer/2022062304/568135f2550346895d9d62a7/html5/thumbnails/15.jpg)
14-15
When to Use Price Cues
Customers purchase item infrequently Customers are new Product designs vary over time Prices vary seasonally Quality or sizes vary across stores
![Page 16: 14 Developing Pricing Strategies and Programs](https://reader035.fdocuments.us/reader035/viewer/2022062304/568135f2550346895d9d62a7/html5/thumbnails/16.jpg)
14-16
Steps in Setting Price
Select the price objective Determine demand Estimate costs Analyze competitor price mix Select pricing method Select final price
![Page 17: 14 Developing Pricing Strategies and Programs](https://reader035.fdocuments.us/reader035/viewer/2022062304/568135f2550346895d9d62a7/html5/thumbnails/17.jpg)
14-17
Step 1: Selecting the Pricing Objective
Survival Maximum current profit Maximum market share Maximum market skimming Product-quality leadership
![Page 18: 14 Developing Pricing Strategies and Programs](https://reader035.fdocuments.us/reader035/viewer/2022062304/568135f2550346895d9d62a7/html5/thumbnails/18.jpg)
14-18
Step 2: Determining Demand
Price sensitivity Estimating demand curves Price elasticity of demand
![Page 19: 14 Developing Pricing Strategies and Programs](https://reader035.fdocuments.us/reader035/viewer/2022062304/568135f2550346895d9d62a7/html5/thumbnails/19.jpg)
14-19
Step 3: Estimating Costs
Types of Costs Accumulated Production Activity-Based Cost Accounting Target Costing
![Page 20: 14 Developing Pricing Strategies and Programs](https://reader035.fdocuments.us/reader035/viewer/2022062304/568135f2550346895d9d62a7/html5/thumbnails/20.jpg)
14-20
Cost Terms and Production
Fixed costs Variable costs Total costs Average cost Cost at different
levels of production
![Page 21: 14 Developing Pricing Strategies and Programs](https://reader035.fdocuments.us/reader035/viewer/2022062304/568135f2550346895d9d62a7/html5/thumbnails/21.jpg)
14-21
Step 5: Selecting a Pricing Method
Markup pricing Target-return pricing Perceived-value pricing Value pricing Going-rate pricing Auction-type pricing
![Page 22: 14 Developing Pricing Strategies and Programs](https://reader035.fdocuments.us/reader035/viewer/2022062304/568135f2550346895d9d62a7/html5/thumbnails/22.jpg)
14-22
Auction-Type Pricing
English auctions Dutch auctions Sealed-bid auctions
![Page 23: 14 Developing Pricing Strategies and Programs](https://reader035.fdocuments.us/reader035/viewer/2022062304/568135f2550346895d9d62a7/html5/thumbnails/23.jpg)
14-23
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
![Page 24: 14 Developing Pricing Strategies and Programs](https://reader035.fdocuments.us/reader035/viewer/2022062304/568135f2550346895d9d62a7/html5/thumbnails/24.jpg)
14-24
Price-Adaptation Strategies
Geographical pricing Discounts/allowances Promotional pricing Differentiated pricing
![Page 25: 14 Developing Pricing Strategies and Programs](https://reader035.fdocuments.us/reader035/viewer/2022062304/568135f2550346895d9d62a7/html5/thumbnails/25.jpg)
14-25
Price-Adaptation StrategiesCountertrade Barter Compensation deal Buyback arrangement Offset
Discounts/ Allowances Cash discount Quantity discount Functional discount Seasonal discount Allowance
![Page 26: 14 Developing Pricing Strategies and Programs](https://reader035.fdocuments.us/reader035/viewer/2022062304/568135f2550346895d9d62a7/html5/thumbnails/26.jpg)
14-26
Promotional Pricing Tactics
Loss-leader pricing Special-event pricing Cash rebates Low-interest financing Longer payment terms Warranties and service contracts Psychological discounting
![Page 27: 14 Developing Pricing Strategies and Programs](https://reader035.fdocuments.us/reader035/viewer/2022062304/568135f2550346895d9d62a7/html5/thumbnails/27.jpg)
Placebo Effects of Marketing Actions: Consumer May Get What They Pay For Beliefs and expectations can affect more than
judgments and subjective consumption experiences.
Can consuming an energy drink that is purchased at a discount lead not only to judgments of lower quality or to a less favorable consumption experience and even less productive activities?
Price can also trigger a placebo effect.
14-27
![Page 28: 14 Developing Pricing Strategies and Programs](https://reader035.fdocuments.us/reader035/viewer/2022062304/568135f2550346895d9d62a7/html5/thumbnails/28.jpg)
Price promotions why could price promotions be bad?
placebo effect
price
quality
price promotion
![Page 29: 14 Developing Pricing Strategies and Programs](https://reader035.fdocuments.us/reader035/viewer/2022062304/568135f2550346895d9d62a7/html5/thumbnails/29.jpg)
14-29
Differentiated Pricing and Price Discrimination
Customer-segment pricing Product-form pricing Image pricing Channel pricing Location pricing Time pricing Yield pricing
![Page 30: 14 Developing Pricing Strategies and Programs](https://reader035.fdocuments.us/reader035/viewer/2022062304/568135f2550346895d9d62a7/html5/thumbnails/30.jpg)
14-30
What kind of pricing strategy?
![Page 31: 14 Developing Pricing Strategies and Programs](https://reader035.fdocuments.us/reader035/viewer/2022062304/568135f2550346895d9d62a7/html5/thumbnails/31.jpg)
14-31
Increasing Prices
Delayed quotation pricing Escalator clauses Unbundling Reduction of discounts
![Page 32: 14 Developing Pricing Strategies and Programs](https://reader035.fdocuments.us/reader035/viewer/2022062304/568135f2550346895d9d62a7/html5/thumbnails/32.jpg)
14-32
Brand Leader Responses to Competitive Price Cuts
Maintain price Maintain price and add value Reduce price Increase price and improve quality Launch a low-price fighter line
![Page 33: 14 Developing Pricing Strategies and Programs](https://reader035.fdocuments.us/reader035/viewer/2022062304/568135f2550346895d9d62a7/html5/thumbnails/33.jpg)
Placebo Effects of Marketing Actions:Consumers May Get What They Pay For
![Page 34: 14 Developing Pricing Strategies and Programs](https://reader035.fdocuments.us/reader035/viewer/2022062304/568135f2550346895d9d62a7/html5/thumbnails/34.jpg)
THE PLACEBO EFFECT
Consumers' beliefs and expectations, shaped by experiences in their daily lives, often influence their judgments of products and services.
Marketing actions, such as pricing, can alter the actual efficacy of products to which they are applied.
This is called the ‘placebo effect’ which stems fro: the activation of expectancies about the efficacy of the product, a process that appears not to be conscious.
![Page 35: 14 Developing Pricing Strategies and Programs](https://reader035.fdocuments.us/reader035/viewer/2022062304/568135f2550346895d9d62a7/html5/thumbnails/35.jpg)
Placebo Effect in the Medical Domain
Placebo phenomenon in the medical domain. Patients' beliefs and expectations about the treatment they are receiving (e.g., an antidepression medication) can yield real changes to their health, even if the treatment is actually inert and has no inherent power to produce health effects (e,g., an inert sugar pill that lcx)ks like the antidepression medication).
![Page 36: 14 Developing Pricing Strategies and Programs](https://reader035.fdocuments.us/reader035/viewer/2022062304/568135f2550346895d9d62a7/html5/thumbnails/36.jpg)
Theories underlying Placebo Effects
Two notions are believed to account for placebo effects: expectancy theory and classical conditioning.
According to expectancy theory, placebo effects arise because beliefs about a substance/procedure serving as a placebo activate expectations that a particular effect will occur, which then affect the subsequent effectiveness of the substance/procedure.
The classical conditioning view considers consuming substances with known therapeutic effects to be conditioning trials.
![Page 37: 14 Developing Pricing Strategies and Programs](https://reader035.fdocuments.us/reader035/viewer/2022062304/568135f2550346895d9d62a7/html5/thumbnails/37.jpg)
Empirical Study on Placebo Effects of Pricing Strategy
A study in which 38 members of a fitness center who exercised regularly (at least three times a week) consumed Twinlab Ultra Fuel before and during a workout session.
Before consuming the energy drink, participants were shown the list of its ingredients and were told that the drink was from the most recently manufactured batch.
One group of participants was told that we purchased the drink at the regular price of $2.89; another group was told that the regular price of the drink was $2.89 but that we had purchased it at a discounted price of $.89 because we bought it in bulk as institutional purchase.
After exercising, participants rated the intensity of their workout on a scale that ranged from -3 ("not at all intense") to +3 ("very intense") and how fatigued they felt on a scale that ranged frotn 1 ("not at all") to 7 ("very").
The results show that participants in the reduced-price condition rated their workout intensity as lower (M = -.4) than did those in the regular-price condition (M = .6; F( 1, 36) = 7.5, p < .01 ), and participants in the reduced-price condition indicated that they were more fatigued (M = 4.5) than did those in the regular-price condition (M = 3.7; F(l. 36) = 3.5, p < .10).
![Page 38: 14 Developing Pricing Strategies and Programs](https://reader035.fdocuments.us/reader035/viewer/2022062304/568135f2550346895d9d62a7/html5/thumbnails/38.jpg)
Empirical Study on Placebo Effect of Price
Low expectancy strength High expectancy strength
Discounted price Full price
Number of Puzzles Solved
Notes: The number of puzzles solved in the control condition = 9.1.