Chapter

16
Developing
Pricing Strategies
and Programs

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 Understanding Pricing
• Pricing in a digital world

 Get instant vendor price comparisons

 Check prices at the point of purchase
 Name your price and have it met
 Get products free
 Monitor customer behavior & tailor offers
 Give customers access to special prices
 Negotiate prices online or even in person
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 Understanding Pricing
• A changing pricing
environment

– Sharing economy

– Bartering

– Renting

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 Understanding Pricing
• How companies price
– Small companies: boss
– Large companies: division/product line
managers
• How companies should price
– Understanding of consumer pricing
psychology
– a systematic approach to setting, adapting,
and changing prices
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Consumer Psychology and
Pricing

Reference prices

Price-quality inferences

Price endings

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Reference Prices

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Setting the Price

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Step 1: Selecting the Pricing
Objective

Maximum
Survival
current profit

Other Maximum
objectives market share

Maximum
Product-quality
market
leadership
skimming

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 Step 2:
Determining Demand
• Price sensitivity
• Estimating demand
curves
– Surveys, price
experiments, &
statistical analysis
• Price elasticity of
demand

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 Figure 16.1
Inelastic And Elastic
Demand

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 Step 3: Estimating Costs
• Accumulated production
– Experience/learning curve

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 Step 4: Analyzing
Competitors’ Prices
• Firm must take competitors’ costs,
prices, & reactions into account
– Value-priced competitors

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 Step 5: Selecting a Pricing
Method
• Figure 16.4: three major
considerations in price
– Costs = price floor
– Competitors’ prices =
orienting point
– Customers’ assessment of
unique features = price
ceiling

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 Step 5: Selecting a Pricing
Method
• Markup pricing
– Add a standard markup to the product’s cost

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 Figure 16.5
Break-Even for Target-Return
Price

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 Step 5: Selecting a Pricing
Method
• Perceived-value pricing
– Based on buyer’s image of product, channel
deliverables, warranty quality, customer
support, and softer attributes (e.g., reputation)

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 Step 5: Selecting a Pricing
Method
• Value pricing
• EDLP
– High-low pricing
• Going-rate
pricing

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 Adapting the Price
• Promotional pricing:

• Loss-leader pricing • Low-interest financing

• Special event pricing • Longer payment terms
• Special customer • Warranties/service
pricing contracts
• Cash rebates • Psychological
discounting

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 Initiating and Responding to
Price Changes
• Initiating price cuts
– Excess plant capacity
– Domination of market
• Price-cutting traps
– Price concessions
– Low-quality
– Fragile market share
– Shallow pockets
– Price war
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