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
(222-224)
• Respond to competition without cutting a price
(226)
12-1
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
12-2
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.”
12-3
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.
12-4
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.
12-5
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.
12-6
What happens to costs as we have produced more?
12-7
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.
Consider:
• 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….”
12-8
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.
12-9