International Marketing Lecture week 4 Development of the firm’s international competitiveness.
Marketing: An Introduction - National Paralegal College · Learning Objective 9-2 Summary...
Transcript of Marketing: An Introduction - National Paralegal College · Learning Objective 9-2 Summary...
Marketing: An IntroductionThirteenth Edition
Chapter 9
Pricing:
Understanding
and Capturing
Customer Value
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First Stop: Amazon Versus Walmart A
Price War for Online Supremacy
Achieving online supremacy
will take more than winning an
online price war.
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Price
• Amount of money charged for a product or service
• Determines a firm’s market share and profitability
• Produces revenue
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Figure 9.1 - Considerations in Setting
Price
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Customer Value-Based Pricing
• Based on buyers’ perceptions of value rather than on
the seller’s cost
• Price is considered before the marketing program is
set.
• Types of value-based pricing:
– Good-value pricing
– Value-added pricing
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Value-Added Pricing
AMC’s Cinema Suites
are adding amenities
and charging more.
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Figure 9.2 - Value-Based Pricing
versus Cost-Based Pricing
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Cost-Based Pricing
• Based on the costs of producing, distributing, and
selling the product plus a fair rate of return for effort
and risk
• Types of costs:
– Fixed costs (overhead)
– Variable costs
– Total costs
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Types of Cost-Based Pricing
Cost-plus pricing (markup pricing)
• Adding a standard markup to the cost of the product
Break-even pricing (target return pricing)
• Setting price to break even on the costs of making and
marketing a product, or setting price to make a target
return
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Figure 9.3 - Break-Even Chart for Determining
Target Return Price and Break-Even Volume
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Competition-Based Pricing (1 of 2)
• Setting prices based on competitors’ strategies, costs,
prices, and market offerings
• Company should ask several questions to assess
competitors’ pricing strategies:
– How does the company’s market offering compare in
terms of customer value?
– How strong are current competitors?
– What are their current pricing strategies?
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Competition-Based Pricing (2 of 2)
Caterpillar dominates
the heavy equipment
industry despite
charging premium
prices.
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Learning Objective 9-1 Summary
• The three major pricing strategies include
– Customer value-based pricing
– Cost-based pricing
– Competition-based pricing
• Customer value perceptions, company costs and
competitor strategies are important considerations
when setting prices.
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Considerations Affecting Pricing
Decisions
• Internal factors
– Overall marketing strategy, objectives, and mix
– Organizational considerations
• External factors
– Market and demand
– Economy
– Impact on other parties in its environment
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Overall Marketing Strategy,
Objectives, and Mix
• Pricing decisions must coordinate with packaging,
promotion, and distribution decisions.
• Positioning may be based on price.
– Target costing starts with an ideal selling price, then
targets costs that ensure the price is met.
• Nonprice positions can be created to differentiate the
marketing offer.
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Organizational Considerations
• Management decides who should set prices.
• Varies depending on the size and type of company
– Small companies - Top management
– Large companies - Divisional or product managers
– Industries with price as the key factor - Pricing
departments
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Pricing in Different Types of Markets
• Pure competition
• Monopolistic competition
• Oligopolistic competition
• Pure monopoly
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Pricing in Oligopolistic Markets
Price is an important
competitive tool for
DirecTV and other
cable providers.
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Figure 9.4 - Demand Curve
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Price Elasticity of Demand
• Measure of the sensitivity of demand to changes in
price
– Inelastic demand: Demand hardly changes with a small
change in price.
– Elastic demand: Demand changes greatly with a small
change in price.
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Economy
Factors impacting pricing strategies
• Boom or recession
• Inflation
• Interest rates
Responses to the frugality of post recession
consumers
• Cut prices and offer discounts
• Develop more affordable items
• Redefine value propositions
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Other External Factors
• Company must consider several other factors in its
external environment when setting prices.
– Resellers
– Government
– Social concerns
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Learning Objective 9-2 Summary
• Factors affecting a firm’s pricing decisions:
– Internal – marketing strategy, objectives, marketing mix,
and organizational considerations
– External – nature of market, demand, economy,
reseller needs, and government actions
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New Product Pricing Strategies (1 of 2)
Market-skimming pricing (price skimming)
• Setting a high price to skim maximum revenues from the
segments willing to pay the high price
• Company makes fewer but more profitable sales
Market-penetration pricing
• Setting a low price to attract a large number of buyers and
a large market share
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New Product Pricing Strategies (2 of 2)
Samsung has used low
initial prices in emerging
mobile device markets.
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Learning Objective 9-3 Summary
• Strategies for pricing new products include
– Market-skimming pricing
– Market-penetrating pricing
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Product Mix Pricing Strategies
• Product line pricing
• Optional-product pricing
• Captive-product pricing
• By-product pricing
• Product bundle pricing
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Product Mix Pricing
Nearly 77 percent of Keurig’s sales
come from its K-Cup portion packs.
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Learning Objective 9-4 Summary
• The firm uses the following pricing strategies to
maximize the profits from the total mix:
– Product line pricing
– Optional products
– Captive products
– By-products
– Product bundles
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Price Adjustment Strategies
• Discount and allowance pricing
• Segmented pricing
• Psychological pricing
• Promotional pricing
• Geographical pricing
• Dynamic pricing
• International pricing
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Discount and Allowance Pricing
• Discount - a straight reduction in price on purchases
during a stated period of time or of larger quantities
– Cash, quantity, functional, and seasonal discounts
• Allowance - promotional money paid to retailers for
an agreement to feature the manufacturer’s products
in some way
– Trade-in and promotional allowances
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Segmented Pricing
• Selling a product or service at two or more prices,
where the difference in prices is not based on
differences in costs
• Forms of segmented pricing:
– Customer-segment pricing
– Product form pricing
– Location-based pricing
– Time-based pricing
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Psychological Pricing
• Considers the psychology of prices and not simply the
economics
– The price says something about the product.
• Reference prices: Prices that buyers carry in their
minds and refer to when looking at a given product
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Promotional Pricing
• Temporarily pricing products below the list price to
increase short-run sales
• Forms of promotional pricing:
– Discounts and special-event pricing
– Limited-time offers and cash rebates
– Low-interest financing and longer warranties
– Free maintenance
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Geographical Pricing
• FOB-origin pricing
• Uniform-delivered pricing
• Zone pricing
• Basing-point pricing
• Freight-absorption pricing
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Dynamic and Online Pricing (1 of 2)
• Dynamic pricing: Adjusting prices continually to meet
the characteristics and needs of individual customers
and situations
• Prevalent online where the Internet introduces a new
age of fluid pricing
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Dynamic and Online Pricing (2 of 2)
With Amazon’s Price
Check, consumers can
get instant product and
price comparisons.
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International Pricing
Price decisions of international companies
• Set a uniform worldwide price
• Adjust prices to reflect local market conditions and cost considerations
Prices charged depend on many factors
• Economic conditions
• Competitive situations
• Laws and regulations
• Nature of the wholesaling and retailing system
• Consumer perceptions and preferences
• Company’s marketing objectives
• Costs of selling in another country
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Learning Objective 9-5 Summary
• Companies apply a variety of price adjustment
strategies:
– Discount and allowance pricing
– Segmented pricing
– Psychological pricing
– Promotional pricing
– Geographical pricing
– Dynamic pricing
– International pricing
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Initiating Price Changes
• Reasons for price cuts:
– Excess capacity
– Falling demand
– Attempt to dominate the market
• Reasons for price increases:
– Cost inflation
– Over-demand
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Reactions to Price Changes
Buyer’s perspective
• Price increase:
– Product is more exclusive or
better made.
– Company is being greedy.
• Price cut:
– Brand wants to get a better
deal on an exclusive product.
– Product’s quality has been
reduced.
– Company’s image has
tarnished.
Competitor’s perspective
• Price cut:
– Company is trying to grab a
larger market share.
– Company is doing poorly and
trying to boost its sales.
– Company wants the whole
industry to cut prices to
increase total demand.
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Figure 9.5 - Responding to Competitor
Price Changes
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Figure 9.6 - Public Policy Issues in
Pricing
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Learning Objective 9-6 Summary
• Customers’ and competitors’ reactions must be
considered when initiating a price change.
• Buyer reactions are influenced by the meaning
customers see in the price change.
• Competitors’ reactions flow from a set reaction policy
or an analysis of each situation.
• Any response to a competitor’s price change should
consider many factors.
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