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9

Pricing
Veronica Mak

Copyright 2011 Pearson Education

Is Price = Money?
Price is the amount of money charged
for a product or service, or the sum of
the values that customers exchange for
the benefits of having or using the
product or service.

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Pricing Considerations

3 Pricing Strategies
Three Pricing Strategies
1. Customer valuebased pricing

2. Competitionbased pricing

3. Cost-Based
pricing
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Value-Based versus Cost-Based


Pricing

Competition-based pricing
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Overall Marketing Strategy,


Objectives, and Mix

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Customer Value-Based
Pricing

PnS: Everyday low price,


high-low pricing

- offering just the right combination of


quality and good service at a fair price

Chinese character
chocolates

- attaching value-added features and


services to differentiate a companys
offers and charging higher prices.
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Good-Value Pricing
Offering the right
combination of
quality and good
service at a fair
price

Snap Fitness
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Value-Added Pricing
Attaching valueadded features
and services to
differentiate a
companys offers
while charging
higher prices

Rather than cutting services to


maintain lower admission prices,
premium theaters such as AMCs
Cinema Suites are adding
amenities and charging more.

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Problems of
Customer Value-Based Pricing
What are the
challenges to a
marketer who
uses valuebased pricing?

Many values are


subjective and
vary from
customer to
customer.

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Cost-Based Pricing

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Types of Cost-Based Pricing

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Breakeven Pricing
What is the
Problem?

Variable cost

it fails to
consider
customer value
and the
relationship
between price
and demand.
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Competition-Based Pricing
Setting prices
based on
competitors
strategies, prices,
costs, and market
offerings

Fast-growing clothing
boutique Hot Mama isnt
likely to win a price war
against giants like Macys or
Kohls. Instead, it relies on
personal service, a mom- and
kid-friendly atmosphere, and
its knowledgeable staff to
turn harried moms into loyal

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Other Considerations Affecting


Pricing Decisions
Internal factors:
Overall marketing strategy, objectives, and
the marketing mix
Organizational considerations

External factors:
Nature of the market and demand
Other environmental factors

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Overall Marketing Strategy,


Objectives, and Mix
Company must decide on its overall
marketing strategy for the product and the
role that price will play in accomplishing
objectives
Pricing decisions need to be coordinated
with packaging, promotion, and
distribution decisions
Positioning may be based on price
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Pricing in Different Types of


Markets
A firms flexibility in
setting price varies
depending on the
nature of the market

Trading in a uniform
commodity such as
wheat, copper, or
financial securities.

Many buyers and


sellers trading over
ranges of prices. 4P to
differentiate, e.g. car

Few sellers, e.g.


petroleum suppliers

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Analyzing the Price-Demand


Relationship - Demand Curve
Price elasticity
the change in
demand with
the change in
price:
Elastic
Inelastic
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The Price-Demand Curve

When ConAgra raised prices on its Banquet frozen dinners, sales fell
sharply. The key component . . .is youve got to be at $1, says CEO Gary
Rodkin, pictured above. Everything else pales in comparison to that.
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The Economy: Impact on Pricing


Economic factors have a strong impact on
pricing strategies
The recent recession has led to many
consumers becoming more valueconscious
While some firms have cut price, others have
shifted to featuring more affordable items
Some firms have held price, but repositioned
brands to enhance their value
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Marketing at Work
When the economy
dipped, rather than
cutting everyday
prices, Whole
Foods set out to
convince shoppers
that it was, in fact,
an affordable place
to shop

Whole Foods assigned


workers to serve as value
tour guides, like the one
above, to escort shoppers
around stores pointing out
value items
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New-Product Pricing Strategies

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When to Use Market-Skimming


Pricing
Products quality and
image supports
its higher price
Costs of low volume
cannot be so high that
they cancel out the
benefit of higher price
Competitors should not
be able to enter market
easily and undercut price
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When to Use Market-Penetration


Pricing

Market is highly price


sensitive so a low price
produces more growth
Production and
distribution costs
decrease as sales
volume increases
Low price can help keep
out the competition, and
the penetration pricer
can maintain its lowprice position
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Product Mix Pricing

Nescafe
Softwares
Razor &
blade
Woodland
Park
Wellcome

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Price Adjustments

Reduction from the list price for buyer actions such as tradeins or promotional and sales support
1) Customer segment pricing, e.g. museums; 2) product-form
pricing, e.g. evian; 3) location-based pricing, e.g.
universities;4) time-based, e.g. cinemas

- High price, better quality; reference prices


- Seasonal sale
- FOB, Zone, uniform-delivery, etc.
Or Real-time pricing based on consumers behavior,
e.g. Amazon, Alaska Airline
McDonald hamburger in different countries.
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Price cutting
Adverse effects:
Create deal-prone customers
Erode a brands value
Lead to price wars

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How to react to price cutting?

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Developing an Integrated Marketing Mix

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Non-test Part
Geographical Pricing
International Pricing
The price that a company should charge in a specific country depends
on many factors, including economic conditions, competitive situations,
laws and regulations, and development of the wholesaling and retailing
system.
Costs play an important role in setting international prices.

PUBLIC POLICY AND PRICING

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Todays Summary

Identify the three major pricing strategies


and discuss the importance of
understanding customer-value
perceptions, company costs, and
competitor strategies when setting prices.
Identify and define the other important
internal and external factors affecting a
firms pricing decisions.
Describe the major strategies for pricing
imitative and new products.
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Todays Summary

Explain how companies find a set of


prices that maximize the profits from the
total product mix.
Discuss how companies adjust their
prices to take into account different types
of customers and situations.
Discuss the key issues related to initiating
and responding to price changes
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