MARKETING
17e
Hult • Pride • Ferrell
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Part 7
Pricing
Decisions
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19: Strategic Pricing
Management
21: Pricing Decisions
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21-2
Objectives
 To describe the six major stages of the process
used to establish prices
 To explore issues related to developing pricing
objectives
 To understand the importance of identifying the
target market’s evaluation of price
 To examine how marketers analyze competitors’
prices
 To describe the bases used for setting prices
 To explain the different types of pricing strategies
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21-3
Components of
Strategic Marketing
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Development of Pricing
Objectives
 Step one of the price-setting process
Pricing Objectives
 Goals that describe what a firm wants to
achieve through pricing
 Should be consistent with organizational and
marketing objectives
 Can be short- or long-term and marketers can
employ multiple pricing objectives
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21-5
Pricing Objectives and Typical
Actions Taken to Achieve Them
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21-6
Discussion Point
Pricing Objective
? What is the pricing
objective for the
retailer in this
advertisement?
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21-7
Assessment of the Target
Market’s Evaluation of Price
 The second step in the price-setting process
 Importance of price depends on:
 Type of product
 Type of target market
 Purchase situation
 Value combines a product’s price and quality
attributes
 Customers use value to differentiate
between competing brands
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21-8
Discussion Point
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17-9
Examples of Perceptions of
Product Value
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Discussion Point
? How does Nestlé’s Toll House brand create
value for its customers?
 Pre-made cookie dough logs
 Cookie dough tubs
 Fancy pre-shaped cookie dough
 Baking supplies
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21-11
Evaluation of Competitors’
Prices
 The third step in the price-setting process
 Marketers should use competitors’ prices to
help them establish their own prices
 Competitors’ prices may be closely guarded
 Pricing above competition creates an
exclusive image
 Pricing below competition can increase
market share
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21-12
Selection of a Basis for Pricing
 The fourth step in the price-setting process
 The three major dimensions on which prices
can be based are:
 Cost
 Demand
 Competition
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Selection of a Basis for Pricing
 An organization usually considers multiple
dimensions
 Type of product
 Market structure of the industry
 Brand’s market share position relative to
competing brands
 Customer characteristics
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21-14
Cost-Based Pricing
Cost-Based Pricing
 Adding a dollar amount or percentage to the
cost of the product
Cost-Plus Pricing
 Determine the seller’s cost and add a specified
dollar to it
 Is used when production costs are difficult to
predict
Markup Pricing
 Adding a predetermined percentage of the
cost to the price of the product
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21-15
Markup Pricing
 Markup can be stated as a percentage of cost
of making the product or a percentage of
selling price
Markup as
% of Cost
=
Markup as %
of Selling Price
Markup 15
= 45
Cost
= 33.3%
Markup
15
=
=
Selling Price
60
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= 25.0%
21-16
Demand-Based Pricing
 Customers pay a higher price when demand
for the product is strong and a lower price
when demand is weak
 Marketers must be able to calculate how much
customers will buy at different price points
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21-17
Discussion Point
Demand-Based Pricing
 Car rental companies often engage in
demand-based pricing
? How does
demandbased
pricing
work?
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21-18
Non-Price Factors Affecting
Demand
 Market
 Degree of competition
 Competitor action/reaction
 General economic conditions
 Product




Quality
Range
Nature-essential/luxury
Substitutes
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21-19
Non-Price Factors Affecting
Demand
 Support
 Service at point of sale and after
 Advertising/promotion
 Distribution Methods
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21-20
Competition-Based Pricing
 Pricing influenced primarily by competitors’
prices
 Importance of this method increases when:
 Competing products are homogeneous
 Organization is serving markets in which price
is a key consideration
 May necessitate frequent price adjustments
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21-21
Discussion Point
? How do you think competition within the
smartphones market has influenced pricing for
phones?
 Apple iPhone
 Verizon Droid
 RIM Droid
 T-Mobile My Touch
 Samsung Galaxy
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21-22
Selection of a Pricing Strategy
 The fifth step in the price-setting process
 A pricing strategy is an approach or course of
action designed to achieve pricing and
marketing objectives
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21-23
Common Pricing Strategies
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21-24
Differential Pricing
Differential Pricing
 Charging different prices to different buyers for
the same quality and quantity of product
Negotiated Pricing
 Establishing a final price through bargaining
between seller and customer
Secondary-Market Pricing
 One price for primary target market and a
different price for another market
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21-25
Differential Pricing
Periodic Discounting Pricing
 Temporary reduction of prices on a patterned
or systematic basis
Random Discounting Pricing
 Temporary reduction of prices on an
unsystematic basis
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21-26
New-Product Pricing
 Setting the price for new products is one of the
most fundamental decisions in the marketing
mix
Price Skimming
 Charging the highest possible price that
buyers who most desire the product will pay
Penetration Pricing
 Setting the price below those of competing
brands to penetrate a market and gain a
significant market share quickly
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21-27
Product-Line Pricing
Product-Line Pricing
 Establishing and adjusting prices of multiple
products within a product line
 The goal is to maximize profits for an entire
product line
Captive Pricing
 Pricing the basic product in a product line low,
while pricing related items higher
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21-28
Discussion Point
Captive Pricing
? Printer ink is a popular example of captive
pricing – why?
? How does
captive
pricing
work?
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21-29
Product-Line Pricing
Premium Pricing
 Pricing the highest-quality or most versatile
products higher than other models in the
product line
Bait Pricing
• Pricing an item in a product line low with the
intention of selling a higher-priced item in the
line
Price Lining
• Setting a limited number of prices for selected
groups or lines of merchandise
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21-30
Price Lining
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21-31
Psychological Pricing
Techniques
Psychological Pricing
 Pricing that attempts to influence a customer’s
perception of price to make a product’s price
more attractive
Reference Pricing
 Pricing a product at a moderate level and
displaying it next to a more expensive model
or brand
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Psychological Pricing
Techniques
Bundle Pricing
 Packaging together two or more
complementary products and selling them at a
single price
Multiple-Unit Pricing
 Packaging together two or more identical
products and selling them at a single price
Everyday Low Prices (EDLP)
 Pricing products low on a consistent basis
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21-33
Psychological Pricing
Techniques
Odd-Even Pricing
 Ending the price with certain numbers to
influence buyers’ perceptions of the price or
product
Customary Pricing
 Pricing certain goods on the basis of tradition
Prestige Pricing
 Setting prices at an artificially high level to
convey prestige or a quality image
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21-34
Discussion Point
? Think of an example you have encountered of
the different psychological pricing techniques
•
•
•
•
Reference Pricing
Bundle Pricing
Multiple-Unit Pricing
Everyday Low Prices (EDLP)
? Did the technique work on you?
? Did you purchase the product?
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21-35
Sample Prestige Product Prices
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21-36
Professional Pricing
 Fees set by people with great skill or
experience in a particular field
 Professional prices do not relate to the time or
effort expended
 A standard fee
 Professionals have an ethical responsibility not
to overcharge customers
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Types of Promotional Pricing
 Price is often coordinated with promotion
Price Leader
 Products priced below the usual markup, near
cost, or below cost
 Management hopes sales of regularly priced
merchandise will offset the reduced revenues
from the price leaders
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21-38
Types of Promotional Pricing
Special-Event Pricing
 Advertised sales or price-cutting is used to
increase sales volume and is linked to a
holiday, a season, or other event
Comparison Discounting
 The pricing of a product at a specific level and
simultaneously comparing it to a higher price
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21-39
Determination of Price: Pricing
Strategy
 The final step in the price-setting process
 Pricing Strategy:
 Yields a certain price, which may need refining
 Helps in setting final price
 In absence of government controls, pricing
remains flexible and a convenient way to adjust
the marketing mix
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21-40