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Transcript Kotler_ch12_basic

Pricing: Where psychology meets economics
Tonight’s GOALS: you could explain how to:
• Use behavioral research to set an initial price for
a new product (211-213). And we’ll practice.
• Reduce the price elasticity of a product (214)
and consider experience curve pricing for a new
manufactured product (215-216)
• Charge some buyers less without cutting a price
• Respond to competition without cutting a price
Research tells us that prices are perceived in
context. So to maximize profit, realize that:
Potential buyers are judging whether your
price is one that their company or they as
consumers are willing to pay. They will,
consciously or not, employ:
• reference prices
• price-quality inferences
• price cues
Factors Leading to Less Price Sensitivity
• Expenditure is small portion of income, or
small compared to total cost of product.
• Others pay part of the purchase price.
• The cost of switching suppliers is high.
• It’s hard to compare suppliers.
• Failing to get the expected benefits will be costly
• The product is a small fraction of the cost to
obtain an important benefit.
• Price communicates quality to buyers.
• The price fits within buyer perceptions of “fair.”
Let’s Price CocoaVia bars
• Product has plant sterols and flavanols
• It will be placed in the health food aisles in
the supermarket
• 2 bars, 1.56 oz., 100 calories each.
Package holds five.
Let’s make a product less price elastic.
Choose one marketed to organizations
In plain language….when you raise your
price by a given percentage, demand will
not decrease by as large a percentage.
That means demand is “price inelastic.”
Worth considering – does that mean when
you cut your price by that same
percentage, demand will not increase by
as large a percentage? Back to the slide
that answers the “it depends” question.
When might we consider “experience curve” pricing?
• The issue is introducing a new product at
a high price --- “skimming” – or introducing
it at a low price – “penetration pricing.”
• Skimming boosts margin, but presumably
lowers volume, all things equal
• Penetration pricing makes better sense if
the idea of experience curve pricing may
apply to our new product. Then our
objective will be high volume, quickly.
What happens to costs as we have produced more?
How do you reduce the cost a customer pays
without cutting a price?
We think price discrimination is sensible:
Everybody doesn’t need to pay the same price.
• Geographic differences
• Promotional pricing
• Pricing differently based on group, form of
product, channel, time …. The relevant “will this
work?” answers are on p. 224: “price
discrimination works when….”
If you are a brand leader, matching competitive
price cuts is your LAST choice
See Figure 12.4 on pp 226-227. Note how
it sequences the decision process:
• Maintain price; consider how to add value
• Not working? Maybe buy a rival
• Or…set up a new competitor that’s your
own low-price fighter line
• Or…? Notice that “match the price cut” is
not on this list.