MARKETING STRATEGY

O.C. FERRELL • MICHAEL D. HARTLINE

8
Pricing Strategy
 The Role of Pricing in
Marketing Strategy (1 of 2)
•  The Seller’s Perspective on Pricing
•  Four key issues:
–  (1) Costs
–  (2) Demand
–  (3) Customer value
–  (4) Competitors’ prices
•  The Buyer’s Perspective on Pricing
–  Two key issues:
•  (1) Perceived value
•  (2) Price sensitivity
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 The Role of Pricing in
Marketing Strategy (2 of 2)
•  A Shift in the Balance of Power
–  Buyer’s market
•  Large number of sellers in the market
•  Many substitutes for the product
•  Economy is weak
–  Seller’s market
•  Products are in short supply
•  High demand
•  Economy is strong
•  The Relationship Between Price and Revenue
–  Myth #1: When business is good, a price cut will
increase market share.
–  Myth #2: When business is bad, a price cut will
stimulate sales. 8-3
 Major Determinants of
Pricing Strategy
•  Pricing Objectives
•  Supply and Demand
•  The Firm’s Cost Structure
•  Competition and Industry Structure
–  Four basic competitive market structures:
•  Pure Competition
•  Monopolistic Competition
•  Oligopoly
•  Monopoly
•  Stage of the Product Life Cycle
•  Other Elements of the Marketing Mix
8-4
 Price Elasticity of Demand (1 of 2)

•  Formula for calculating price elasticity:

•  Situations That Increase Price Sensitivity

–  Availability of product substitutes
–  Higher total expenditure
–  Noticeable differences
–  Easy price comparison
8-5
 Price Elasticity of Demand (2 of 2)
•  Situations That Decrease Price Sensitivity
–  Real or perceived necessities
–  Lack of product substitutes
–  Complementary products
–  Product differentiation
–  Perceived product benefits
–  Situational influences
•  Price Elasticity and Yield Management
–  Allows simultaneous control of capacity and demand
•  Control capacity by limiting available capacity at
certain price points
•  Control demand through price changes and
overbooking capacity
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Yield Management for
a Hypothetical Model

Exhibit 8.4 8-7

 Pricing Strategies (1 of 2)
•  Base Pricing Strategies
–  Price Skimming
–  Penetration Pricing
–  Prestige Pricing
–  Value-Based Pricing (EDLP)
–  Competitive Matching
–  Non-Price Strategies
•  Adjusting Prices in Consumer Markets
–  Promotional Discounting
–  Reference Pricing
–  Odd-Even Pricing
–  Price Bundling 8-8
 Pricing Strategies (2 of 2)
•  Adjusting Prices in Business Markets
–  Pricing techniques unique to business markets:
•  Trade discounts
•  Discounts and allowances
•  Geographic pricing
•  Transfer pricing
•  Barter and countertrade
–  Price discrimination

8-9
 Fixed vs. Negotiated Pricing

•  Three pricing levels in a negotiated price situation:

–  (1) Opening position
–  (2) Aspiration price
–  (3) Limit
•  Guidelines for making concessions:
–  Avoid being the first side to make a concession
–  Start with modest concessions and make them smaller as
you proceed
–  Avoid making concessions early in the negotiation
–  Do not give up anything without something in return
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Major Online Auction Strategies

Exhibit 8.5 8-11

 Legal and Ethical Issues in Pricing

•  Price Discrimination
•  Price Fixing
•  Predatory Pricing
•  Deceptive Pricing

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