Transcript Kotler_ch12
A FRAMEWORK for MARKETING MANAGEMENT Chapter 12 Developing Pricing Strategies and Programs Kotler Keller Cunningham Chapter Questions • How do consumers process and evaluate prices? • How should a company set initial prices for its offerings? • How should a company adapt prices to meet varying circumstances and opportunities? • What should a company do to initiate a price change or respond to a competitor’s price change? © Copyright 2008 Pearson Education Canada 12-2 Profile: Canadian Marketing Excellence KIA CANADA • Kia Canada: Sell value, not price • Launched in 1999, a subsidiary of Hyundai • Use comparative pricing, its new “extra care” warranty, and an innovative brand building strategy • Competes on price, but also built brand credibility using advertising and event sponsorship © Copyright 2008 Pearson Education Canada 12-3 Elements Affecting Price Company Marketing environment Marketing strategy Elements Competition Customers Target markets Brand positionings © Copyright 2008 Pearson Education Canada 12-4 Synonyms for Price • • • • • • • • Rent Tuition Fee Fare Rate Toll Premium Honorarium • • • • • • • Special assessment Bribe Dues Salary Commission Wage Tax © Copyright 2008 Pearson Education Canada 12-5 Consumer Psychology and Pricing Reference prices Price-quality inferences Price cues © Copyright 2008 Pearson Education Canada 12-6 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 © Copyright 2008 Pearson Education Canada 12-7 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 © Copyright 2008 Pearson Education Canada 12-8 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 © Copyright 2008 Pearson Education Canada 12-9 Figure 12.1 Setting Price Policy Select the price objective Determine demand Estimate costs Analyze competitor price mix Select pricing method Select final price © Copyright 2008 Pearson Education Canada 12-10 1. Select the Price Objective • Survival • Maximum current profit • Maximum market share • Maximum market skimming • Product-quality leadership © Copyright 2008 Pearson Education Canada 12-11 2. Determine Demand Price sensitivity Estimating demand curves Price elasticity of demand © Copyright 2008 Pearson Education Canada 12-12 Table 12.1 Factors Leading to Less Price Sensitivity • Product is more distinctive • Substitutes are largely unknown and difficult to compare • Expenditure is small portion of income • Expenditure is small compared to total cost of product • Cost is shared • Product is differentiated • Product cannot be stored © Copyright 2008 Pearson Education Canada 12-13 Demand Is Likely to Be Less Elastic When… • There are few or no substitutes or competitors • Price increases are not readily noticed • Buyers are slow to change buying habits • Buyers can justify higher prices © Copyright 2008 Pearson Education Canada 12-14 3. Estimate Costs Types of costs Accumulated production Activity-based cost accounting Target costing © Copyright 2008 Pearson Education Canada 12-15 Types of Costs • • • • • Fixed costs Variable costs Total costs Average cost Cost at different levels of production © Copyright 2008 Pearson Education Canada 12-16 Figure 12.2 The Experience Curve: Cost per Unit as a Function of Accumulated Production © Copyright 2008 Pearson Education Canada 12-17 4. Analyze Competitor Price Mix • Does the firm offer features not offered by the closest competitor? • Given this point of comparison, should the price be higher, lower, or the same? • Why is the Whirlpool Duet combo priced nearly four times what some competitors charge for a comparable product? © Copyright 2008 Pearson Education Canada 12-18 5. Select Pricing Method • Markup pricing • Target-return pricing • Perceived-value pricing • Value pricing • Going-rate pricing • Auction-type pricing © Copyright 2008 Pearson Education Canada 12-19 The Bay • The Bay partially revised its upscale image to emphasize affordability and value (2002) • Adopted the tagline “More than you came for” • 2 years later, the Bay opened its first Designer Depot outlet © Copyright 2008 Pearson Education Canada 12-20 Auction-Type Pricing English auctions Dutch auctions Sealed-bid auctions © Copyright 2008 Pearson Education Canada 12-21 6. Select Final Price • Impact of other marketing activities • Company pricing policies • Gain-and-risk sharing pricing • Impact of price on other parties © Copyright 2008 Pearson Education Canada 12-22 Price-Adaptation Strategies Geographical pricing Discounts/allowances Promotional pricing Differentiated pricing © Copyright 2008 Pearson Education Canada 12-23 Price-Adaptation Strategies Countertrade • Barter • Compensation deal • Buyback arrangement • Offset Discounts/Allowances • Cash discount • Quantity discount • Functional discount • Seasonal discount • Allowance © Copyright 2008 Pearson Education Canada 12-24 Promotional Pricing Tactics • • • • • • • Loss-leader pricing Special-event pricing Cash rebates Low-interest financing Longer payment terms Warranties and service contracts Psychological discounting © Copyright 2008 Pearson Education Canada 12-25 Differentiated Pricing and Price Discrimination • • • • • • Customer-segment pricing Product-form pricing Image pricing Channel pricing Location pricing Time pricing © Copyright 2008 Pearson Education Canada 12-26 Product-Mix Pricing Product line Two-part Optional feature By-product Captive product Product bundling © Copyright 2008 Pearson Education Canada 12-27 Increasing Prices Delayed quotation pricing Escalator clauses Unbundling Reduction of discounts © Copyright 2008 Pearson Education Canada 12-28 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 © Copyright 2008 Pearson Education Canada 12-29 Figure 12.5 Price-Reaction Program for Meeting Competitor’s Price Cut © Copyright 2008 Pearson Education Canada 12-30 For Discussion As a consumer, which pricing method do you personally feel most comfortable with? Why? © Copyright 2008 Pearson Education Canada 12-31