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Definition of price
Major factors Affecting Price Decisions/Setting Price
General Pricing Approaches:
Value-Based
Cost-Based
Competition-Based
Pricing Strategies:
New Product Pricing strategies
Product Mix Pricing strategies
Price Adjustment strategies
Price changes
Copyright © 2011 Pearson Education, Inc. Publishing as Prentice Hall 01
Price
pg 314
the sum of all the values that consumers give up in
order to gain the benefits of having or using a
product or service.
03
Major factors Affecting Price
Decisions/Setting Price:
1. Overall Marketing Strategy, Objectives &
Mix
General pricing objectives might include survival, current profit
maximization, market share leadership, or customer retention and
relationship building.
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3. ORGANIZATIONAL CONSIDERATIONS
Small companies, prices are often set by top management
rather than by the marketing or sales departments.
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5. DEMAND
Normally, demand and price are inversely related:
Higher price = lower demand, v.v.
Copyright © 2011 Pearson Education, Inc. Publishing as Prentice Hall Copyright © 2011 Pearson Education, Inc. Publishing as Prentice Hall 10
TYPES OF MARKETS
Pure competition: The market consists of many buyers and sellers trading in a uniform
commodity. No single buyer or seller has much effect on the going market price.
In a purely competitive market, sellers do not spend much time on marketing strategy.
Monopolistic competition: The market consists of many buyers and sellers who trade
over a range of prices rather than a single market price. A range of prices occurs because
sellers can differentiate their offers to buyers.
Oligopolistic competition: The market consists of a few sellers who are highly sensitive
to each other’s pricing and marketing strategies.
There are few sellers because it is difficult for new sellers to enter the market.
Pure monopoly: The market consists of one seller. The seller may be a government
monopoly, a private regulated monopoly, or a private non-regulated monopoly.
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Elasticity of demand
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6. ENVIRONMENTAL FACTORS:
EG. RESELLER
GOVERNMENT
SOCIETY
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General Pricing Approach
Pg 315-323
Value-Based Cost-Based Competition-Based
- It is customer driven - It is product driven - Set above, at par or
- It sets the price ceiling - It sets the price floor below competitors price
2.HIGH-LOW PRICING
involves charging higher prices on
an everyday basis but running
frequent promotions to lower
prices temporarily on selected
items
eg. Parkson
PRICE
PRODUCT COST
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Pricing Strategies:
New Product Pricing strategies
pg 338
SKIM PENETRATE
only temporary.
Product Mix Pricing Strategies
pg 339
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Product line
pricing
34
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Captive
product pricing
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By-product
pricing
36
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Product bundle
pricing
37
Copyright © 2011 Pearson Education, Inc. Publishing as Prentice Hall
Price Adjustment Strategies
pg 343
Psychological Promotional
pricing pricing
Note: Companies usually adjust their basic prices to account for various
customer differences and changing situations 38
Discount and
allowance
pricing
Most companies adjust their basic price to reward customers for certain
responses:
1. cash discount
price reduction to buyers who pay their bills promptly.
2. quantity discount
price reduction to buyers who buy large volumes
3. functional discount
offered by the seller to trade-channel members who perform certain
functions eg. selling, storing, and record keeping.
4. seasonal discount
price reduction to buyers who buy out of season.
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Segmented
pricing
Companies will often adjust their basic prices to allow for differences in
customers, products, and locations.
In segmented pricing, the company sells a product or service at two or
more prices, even though the difference in prices is not based on
differences in costs:
1. customer-segment pricing
different customers pay different prices for the same product or
service.
2. product form pricing
different versions of the product are priced differently but not
according to differences in their costs.
3. location pricing
company charges different prices for different locations, even
though the cost of offering each location is the same.
4. time pricing
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firm varies its prices by season, month, day & even the hour.
Segmented
pricing
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Psychological
pricing
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Promotional
pricing
Companies will temporarily price their products below list price or below
cost to create buying excitement & urgency.
Promotional pricing takes several forms:
1. The seller may simply offer discounts from normal prices to
increase sales and reduce inventories.
2. Supermarkets and department stores will price a few products
as loss leaders to attract customers to the store in the hope that
they will buy other items at normal markups.
3. Use special-event pricing in certain seasons to get more
customers.
4. Manufacturers offer cash rebates to consumers who buy the
product from dealers within a specified time; the manufacturer
sends the rebate directly to the customer.
5. Manufacturers offer low-interest financing, longer warranties or
free maintenance to reduce the consumer’s “price.” 43
Adverse Effects of Promotional pricing:
1. If used too frequently & copied by competitors,
price promotions can create “deal-prone”
customers who wait until brands go on sale before
buying them.
2. Constantly reduced prices can erode a brand’s
value in the eyes of customers.
3. ‘quick-fix’ strategy that lasts short term
4. Lead to industry price wars
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Geographic
pricing
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Geographic pricing:
1. FOB-origin pricing goods are placed free on board (hence, FOB) a carrier. At
that point the title and responsibility pass to the customer, who pays the freight
from the factory to the destination.
2. Uniform-delivered pricing company charges the same price plus freight to all
customers, regardless of their location. The freight charge is set at the average
freight cost (the opposite of FOB pricing)
3. Zone pricing falls between FOB-origin pricing and uniform-delivered pricing.
The company sets up two or more zones. All customers within a given zone pay
a single total price; the more distant the zone, the higher the price.
4. Basing-point pricing seller selects a given city as a “basing point” and charges
all customers the freight cost from that city to the customer location, regardless
of the city from which the goods are actually shipped. Some companies set up
multiple basing points to create more flexibility in quoting freight charges from the
basing-point city nearest to the customer.
5. freight-absorption pricing seller who is anxious to do business with a certain
customer or geographical area absorbs all or part of the actual freight charges in
order to get the desired business.
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Dynamic
Pricing
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International
Pricing
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Copyright © 2011 Pearson Education, Inc. Publishing as Prentice Hall
International pricing
Costs play an important role in setting
international prices. Travelers abroad
are often surprised to find that goods
that are relatively inexpensive at home
may carry outrageously higher price
tags in other countries.
In some cases, such price escalation
may result from differences in selling
strategies or market conditions.
In most instances, however, it is simply
a result of the higher costs of selling in
another country—the additional costs
of product modifications, shipping and
insurance, import tariffs and taxes,
exchange rate fluctuations, and
physical distribution.
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Price changes
pg 349
Price Cuts
Situations leading to price cuts include excess capacity, falling market share or a
plan to dominate the market through lower costs.
Price Increases
Factors causing price increases include cost inflation, over demand & increase
market share.
Companies can increase their prices in a number of ways:
- raised almost invisibly by dropping discounts
- adding higher-priced units to the line
- prices can be pushed up openly.
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Price cut
reactions-consumers
A brand’s price & image are often closely linked. A price change, especially
a drop in price, can adversely affect how consumers view the brand.
Consumers may believe the cut indicates that the product will be phased
out soon or is not successful.
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Price increase
reactions-consumers
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Public policy and pricing
(note: Further reading at your
own time on public policy &
pricing, pg 352)
Copyright © 2011 Pearson Education, Inc. Publishing as Prentice Hall
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Pricing within
channels
Price Fixing
Predatory
Pricing
58
Pricing across
channel levels
Price
Discrimination
Price
Maintenance
Deceptive
pricing
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