Setting Prices

Download Report

Transcript Setting Prices

Chapter 22
Setting Prices
Objectives
• Describe six major stages of process to
establish prices
• Explore issues in developing pricing objectives
• Understand importance of identifying target
market’s evaluation of price
• Examine how marketers analyze competitors’
prices
• Describe bases for setting prices
• Explain types of pricing strategies
Copyright © Houghton Mifflin Company. All rights reserved.
22 | 3
Development
of Pricing Objectives
Pricing objectives – goals that describe what
a firm wants to achieve through pricing
Business Planning- Pricing
Copyright © Houghton Mifflin Company. All rights reserved.
22 | 4
Stages For Establishing Prices
Copyright © Houghton Mifflin Company. All rights reserved.
22 | 5
Pricing Objectives And
Typical Actions To Achieve Them
Copyright © Houghton Mifflin Company. All rights reserved.
22 | 6
Pricing Objectives
•
•
•
•
•
•
•
Survival
Profit
Return on Investment (ROI)
Market Share
Cash Flow
Status Quo
Product Quality
Copyright © Houghton Mifflin Company. All rights reserved.
22 | 7

High-quality
products are
usually priced
to reflect the
quality level
© 2005 BMW of North America, LLC, used with permission. The BMW name and logo are registered trademarks.
Copyright © Houghton Mifflin Company. All rights reserved.
22 | 8
Assessment of the Target
Market’s Evaluation of Price
• Price depends on:
– Type of product
– Type of target market
– Purchase situation (e.g: price of concessions
at movies)
Copyright © Houghton Mifflin Company. All rights reserved.
22 | 9
Examples Of Perceptions
Of Product Value
Copyright © Houghton Mifflin Company. All rights reserved.
22 | 10
Evaluation of
Competitors’ Prices
• Regular function of marketing research
• Importance of customer view of pricing
and marketing mix variables
– Pricing above competition – creates an
exclusive image
– Pricing below competition – gains market
share
Copyright © Houghton Mifflin Company. All rights reserved.
22 | 11

Some prices are
set higher than
the competition
to create an
exclusive image
FIJI ® and all other trademarks, copyrights and intellectual property used herein are
the property of FIJI Water Company LLC or its affiliates." Used by permission
Copyright © Houghton Mifflin Company. All rights reserved.
22 | 12

Selection of a Basis of Pricing
•
•
•
•
Cost
Demand
Competition
Other
Copyright © Houghton Mifflin Company. All rights reserved.
22 | 13
Cost Based Pricing
• Cost-based pricing – a dollar amount to
the cost of the product
• Cost-plus pricing – adding a specified
dollar amount to the seller’s costs
• Markup – Adding to the cost of the product
a predetermined percentage of that cost
Copyright © Houghton Mifflin Company. All rights reserved.
22 | 14
Markup as % Markup 15
33.3 %
=
=
=
Cost
45
of Cost
Markup as %
Markup
15
= Selling Price = 60 = 25.0 %
of Selling Price
Copyright © Houghton Mifflin Company. All rights reserved.
22 | 15
Demand-Based Pricing
Customers pay a higher price when demand
for the product is strong and a lower price
when demand is weak
Copyright © Houghton Mifflin Company. All rights reserved.
22 | 16

Non-Price Factors
Affecting Demand
• Product
• Market
– Quality
– Degree of competition
– Range
– Competitor action/reaction
– Nature- essential/luxury
– General economic
conditions
– Substitutes
• Support
– Service at point of sale
& after
– Advertising/promotion
– Distribution Methods
“Demand based pricing”, N. Coulthurst, 4/3/02,
http://www.accaglobal.com/publications/studentaccountant/404831
Copyright © Houghton Mifflin Company. All rights reserved.
22 | 17

Point-of-sale
service affects
demand
Reprinted with permission of Lowe's Companies
Copyright © Houghton Mifflin Company. All rights reserved.
22 | 18

Competition-Based Pricing
• Pricing influenced primarily by
competitors’ prices
– method increases when:
• competing products are homogeneous
• organization is serving markets in which price
is a key consideration
www.zillow.com
Copyright © Houghton Mifflin Company. All rights reserved.
22 | 19
Selection of a Pricing Strategy
• Differential Pricing – different prices to different buyers
for the same product
• New-Product Pricing
• Product-Line Pricing – establishing prices of multiple
products within a product line
• Psychological Pricing – influence customer perception
to make a product’s price attractive
• Professional Pricing – fees set by experienced people
in particular field
• Promotional Pricing
Copyright © Houghton Mifflin Company. All rights reserved.
22 | 20
Common Pricing Strategies
Copyright © Houghton Mifflin Company. All rights reserved.
22 | 21

Differential Pricing Techniques
• Negotiated – final price established through buyer/seller
bargaining
• Secondary-market – one price for primary target market
and different price for another
• Periodic discounting – systematic temporary price
reduction
• Random discounting – unsystematic temporary
price reduction
Poll and comments on differential
pricing at Amazon.com.
Copyright © Houghton Mifflin Company. All rights reserved.
22 | 22

Steps In
Developing New Product Pricing
1)
2)
3)
4)
5)
6)
7)
Develop Marketing Strategy
Make Marketing Mix Decisions
Estimate Demand Curve
Calculate Cost
Understand Environmental Factors
Set Pricing Objectives
Determine Pricing
NetMBA, “Pricing Strategy”, 2005,
http://www.netmba.com/marketing/pricing/
Copyright © Houghton Mifflin Company. All rights reserved.
22 | 23
New-Product Pricing
• Price skimming – charging the highest possible
price that buyers who most desire the product
will pay
• Penetration pricing – prices set below competing
brands to penetrate market and gain market
share quickly
Copyright © Houghton Mifflin Company. All rights reserved.
22 | 24
Product-Line Pricing Strategies
• Captive – basic product in a product line low
while related items higher
• Premium – pricing highest-quality product
higher than other models
• Bait – low pricing on one item in line with
intention of selling higher-priced item in the line
• Price Lining – limited number of prices for
selected lines of merchandise
Copyright © Houghton Mifflin Company. All rights reserved.
22 | 25

For Premium Pricing,
Engage The Emotions
1) Taking Care of Me - overstressed people want
to pamper selves
2) Connect with Friends & Family - serious money
to nurture family, romantic getaways, cosmetic
surgery, etc.
3) Questing - consumers appreciate adventure
4) Individual Style - personal taste, differentiate
self from others
iBizResources, “For Premium Pricing, engage the Emotions”, 2006,
http://www.familybusinessstrategies.com/articles4/041404f.html
Copyright © Houghton Mifflin Company. All rights reserved.
22 | 26
Psychological
Pricing Techniques
• Reference pricing – moderate pricing positioned
next to a more expensive brand
• Bundles pricing – packaging multiple products
to be sold at a single price
• Multiple-unit pricing – packaging together
two or more identical products to be sold at a
single price
• Everyday low prices (EDLP) – pricing products
low on a consistent basis
Copyright © Houghton Mifflin Company. All rights reserved.
22 | 27
More Psychological
Pricing Techniques
• Odd-even pricing – ending the price with a
certain number to influences buyers’ perceptions
• Customary pricing – on the basis of tradition
• Prestige pricing – setting prices at a high level to
convey prestige
Copyright © Houghton Mifflin Company. All rights reserved.
22 | 28

Consumers
associate
higher prices
with higher
quality
Reprinted with permission of Mannington Mills, Inc.
Copyright © Houghton Mifflin Company. All rights reserved.
22 | 29

Price Of Adult One-Day
Passport To Walt-Disney World
$70
$60
$50
$40
$30
$20
$10
$0
1995
2000
2005
USA Today Snapshots, “The Price of Amusement”, May 12-14, 2006, p. A1.
Copyright © Houghton Mifflin Company. All rights reserved.
22 | 30
Sample Prestige Product Prices
Copyright © Houghton Mifflin Company. All rights reserved.
22 | 31

Concept of Professional Pricing
Professional pricing carries the idea that
professional have an ethical responsibility
not to overcharge customers
Aetna Physician Pricing Transparency
Copyright © Houghton Mifflin Company. All rights reserved.
22 | 32
Types Of
Promotional Pricing
• Price Leader- firm prices a few products below
the usual markup, near cost, or below cost
• Special-Event- advertised sales or price-cutting
linked to a holiday, a season, or an event
• Comparison Discounting- price is set at a
specific level and simultaneously compares it
with a high price
Copyright © Houghton Mifflin Company. All rights reserved.
22 | 33

Special events
are often
seasonal
and employ
special-event
pricing
Reprinted with permission of Montage, Inc.
Copyright © Houghton Mifflin Company. All rights reserved.
22 | 34
Determination of
Price: Pricing Strategy
• Yields a certain price- may need refining
• Helps in setting final price
• In absence of government price controls,
remains flexible and convenient to adjust the
marketing mix
Copyright © Houghton Mifflin Company. All rights reserved.
22 | 35