Transcript Kotler Keller 14

14
Developing Pricing
Strategies and Programs
Marketing Management, 13th ed
Chapter Questions
• How do consumers process and evaluate
prices?
• How should a company set prices initially for
products or services?
• How should a company adapt prices to meet
varying circumstances and opportunities?
• When should a company initiate a price
change?
• How should a company respond to a
competitor’s price challenge?
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Synonyms for Price
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Rent
Tuition
Fee
Fare
Rate
Toll
Premium
Honorarium
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Special assessment
Bribe
Dues
Salary
Commission
Wage
Tax
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Common Pricing Mistakes
• Determine costs and take traditional industry
margins
• Failure to revise price to capitalize on market
changes
• Setting price independently of the rest of the
marketing mix
• Failure to vary price by product item, market
segment, distribution channels, and
purchase occasion
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Consumer Psychology
and Pricing
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Reference prices
Price-quality inferences
Price endings
Price cues
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Table 14.1 Possible Consumer
Reference Prices
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“Fair price”
Typical price
Last price paid
Upper-bound price
• Lower-bound price
• Competitor prices
• Expected future
price
• Usual discounted
price
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Table 14.2 Consumer Perceptions vs.
Reality for Cars
Overvalued Brands
• Land Rover
• Kia
• Volkswagen
• Volvo
• Mercedes
Undervalued Brands
• Mercury
• Infiniti
• Buick
• Lincoln
• Chrysler
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Price Cues
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“Left to right” pricing ($299 vs. $300)
Odd number discount perceptions
Even number value perceptions
Ending prices with 0 or 5
“Sale” written next to price
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When to Use Price Cues
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Customers purchase item infrequently
Customers are new
Product designs vary over time
Prices vary seasonally
Quality or sizes vary across stores
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Steps in Setting Price
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Select the price objective
Determine demand
Estimate costs
Analyze competitor price mix
Select pricing method
Select final price
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Step 1: Selecting the Pricing Objective
• Survival:
• When companies set survival as their
major objectives, they set the price that
covers variable costs and some fixed costs
to stay in business.
• Maximum Current Profit:
• When companies use current profit
maximization as their pricing goal, they
choose the price that will produce the
maximum current profit or return on
investment.
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Step 1: Selecting the Pricing Objective
• Maximum market share: market penetration
strategy:
• Some companies want to maximize their market
share. They set the lowest price, assuming the
market is price sensitive.
• The following conditions favor a low price:
• The market is highly price sensitive, and a low
price stimulates market growth.
• Production and distribution costs fall with
accumulated production experience.
• A low price discourages actual and potential
competition.
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Step 1: Selecting the Pricing Objective
• Maximum market skimming:
• Setting a high price for a new product to
skim maximum revenue layer by layer
from the segments that are willing to pay
high price; the company makes fewer, but
more profitable sales. When the initial
sales slow down, and as competitors
threaten to introduce similar chips. The
company can lower the price to draw in a
new price-sensitive layer of customers.
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Step 1: Selecting the Pricing Objective
• Market skimming makes sense under
the following conditions:
• A sufficient number of buyers have a high
current demand.
• the high initial price does not attract more
competitors to the market.
• The high price communicates the image of
a superior product.
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Step 1: Selecting the Pricing Objective
• Product-quality leadership:
• Many brands strive to characterize by high
levels of perceived quality, taste, and
statue with a price just high enough not to
be out of consumers reach.
• Other objectives:
• Non profit and public organizations may
have other pricing objectives. Universities
aim for partial cost recovery. Gifts and
public grants to cover the remaining costs.
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Step 2: Determining Demand
• Price sensitivity
• Estimate demand curves
• Price elasticity of demand
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Table 14.3 Factors Leading to Less
Price Sensitivity
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The product is more distinctive
Buyers are less aware of substitutes
Buyers cannot easily compare the quality of substitutes
The expenditure is a smaller part of buyer’s total income
The expenditure is small compared to the total cost of
the end product
Part of the cost is paid by another party
The product is used with previously purchased assets
The product is assumed to have high quality and
prestige
Buyers cannot store the product
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Step 3: Estimating Costs
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Types of costs
Accumulated production
Activity-based cost accounting
Target costing
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Cost Terms and Production
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Fixed costs
Variable costs
Total costs
Average cost
Cost at different levels of production
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Step 5: Selecting a Pricing Method
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Markup pricing
Target-return pricing
Perceived-value pricing
Value pricing
Going-rate pricing
Auction-type pricing
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Auction-Type Pricing
• English auctions
• Dutch auctions
• Sealed-bid auctions
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Step 6: Selecting the Final Price
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Impact of other marketing activities
Company pricing policies
Gain-and-risk sharing pricing
Impact of price on other parties
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Price-Adaptation Strategies
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Geographical pricing
Discounts/allowances
Promotional pricing
Differentiated pricing
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Price-Adaptation Strategies
Countertrade
• Barter
• Compensation deal
• Buyback
arrangement
• Offset
Discounts/ Allowances
• Cash discount
• Quantity discount
• Functional discount
• Seasonal discount
• Allowance
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Promotional Pricing Tactics
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Loss-leader pricing
Special-event pricing
Cash rebates
Low-interest financing
Longer payment terms
Warranties and service contracts
Psychological discounting
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Differentiated Pricing
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Customer-segment pricing
Product-form pricing
Image pricing
Channel pricing
Location pricing
Time pricing
Yield pricing
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Increasing Prices
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Delayed quotation pricing
Escalator clauses
Unbundling
Reduction of discounts
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Brand Leader Responses to
Competitive Price Cuts
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Maintain price
Maintain price and add value
Reduce price
Increase price and improve quality
Launch a low-price fighter line
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