MARKETING MANAGEMENT 12th edition

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MARKETING MANAGEMENT12th edition

• 14
• Developing Pricing Strategies and Programs

Kotler Keller
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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 competitors
  price challenge?

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Whirlpools Duet combo is nearly four times the
price of comparable models
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Synonyms for Price

• Special assessment
• Bribe
• Dues
• Salary
• Commission
• Wage
• Tax

• Rent
• Tuition
• Fee
• Fare
• Rate
• Toll
• Premium
• Honorarium

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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
Reference Prices
Price-quality inferences
Price endings
Price cues
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Table 14.1 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

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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

• 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

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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

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Steps in Setting Price
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
• Maximum current profit
• Maximum market share
• Maximum market skimming
• Product-quality leadership

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Figure 14.1 Price Tiers in the Ice Cream Market
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Step 2 Determining Demand
Price Sensitivity
Estimating Demand Curves
Price Elasticity of Demand
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Figure 14.2 Inelastic and Elastic Demand
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Step 3 Estimating Costs
Types of Costs
Accumulated Production
Activity-Based Cost Accounting
Target Costing
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Cost Terms and Production

• Fixed costs
• Variable costs
• Total costs
• Average cost
• Cost at different levels of production

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Figure 14.4 Cost per Unit as a Function of
Accumulated Production
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9 Lives Uses Target Costing
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Step 5 Selecting a Pricing Method

• Markup pricing
• Target-return pricing
• Perceived-value pricing
• Value pricing
• Going-rate pricing
• Auction-type pricing

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Figure 14.6 Break-Even Chart
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Auction-Type Pricing
English auctions
Dutch auctions
Sealed-bid auctions
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Step 6 Selecting the Final Price

• 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
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

• 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 and Price Discrimination

• Customer-segment pricing
• Product-form pricing
• Image pricing
• Channel pricing
• Location pricing
• Time pricing
• Yield pricing

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Table 14.5 Profits Before and After a Price
Increase
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Increasing Prices
Delayed quotation pricing
Escalator clauses
Unbundling
Reduction of discounts
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Figure 14.7 Price-Reaction Program for Meeting
Competitors Price Cut
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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

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Marketing Debate

• Is the right price a fair price?
• Take a position
• Prices should reflect the value that
• consumers are willing to pay.
• 2. Prices should primarily just reflect the cost
• involved in making a product.

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Marketing Discussion

• As a consumer, which pricing
• method do you personally
• prefer to deal with? Why?