Marketing
Chapter 13
Pricing
Goods and Services
Gilbert A. Churchill, Jr.
J. Paul Peter
Slide
13-1
Figure
13.2
The Pricing Process - I
Set Pricing
Objectives
Analyze Profit
Potential
Evaluate Customer
Response and other
Pricing Constraints
Set Initial Price
Make Price
Adjustments
as Needed
Slide
13-2
Pricing Objectives
Pricing Objective
Examples
Segmentation and
Positioning Objectives
Support Efforts to Position Product
for Market Target
Sales and Profit Objectives
Achieve desired levels of sales and
earn targeted level of profits
Competitive Objective
Compete in terms of relative price or
market share
Survival Objective
Enable organization to survive
Social Responsibility
Objective
Meet a standard of social
responsibility
Slide
13-3
Table
13.1
Segmentation and Positioning
Objectives
Price Level
Value Position
Examples
High relative
to product
class
High value because of
quality and prestige.
Nike athletic shoes (such
as Air Jordans); dental
work by a widely respected
specialist.
Around
average for
product class
High value because of
good quality at a
reasonable price.
Keds tennis shoes; dental
work by the neighborhood
family dentist.
Low relative
to product
class
High value because of
acceptable quality at a
low price.
Generic or private-label
shoes at a drugstore or
discount store; dental work
by students being trained
at a university clinic.
Slide
13-4
Figure
13.2
The Pricing Process - II, III, IV
Set Pricing
Objectives
Analyze Profit
Potential
Evaluate Customer
Response and other
Pricing Constraints
Set Initial Price
Make Price
Adjustments
as Needed
Slide
13-5
Set Initial Price - Strategies for Pricing
New Products
Price
Skimming
$
Penetration
Pricing
Time
Slide
13-6
Set Initial Price - Strategies for Pricing
Existing Products
Product Characteristics
Examples
Perishability
This includes physical perishability (bananas)
as well as demand running out over time
(Christmas cards)
Distinctiveness
The product must be distinct enough from the
competition in terms of quality, branding,
design, and features
Life Cycle Stage
As the product goes from the introductory,
growth, maturity and decline, the price must
continuously decrease
Slide
13-7
Pricing Product Lines
Price Lining
Uniform Pricing
Slide
13-8
Figure
13.2
The Pricing Process - V
Set Pricing
Objectives
Analyze Profit
Potential
Evaluate Customer
Response and other
Pricing Constraints
Set Initial Price
Make Price
Adjustments
as Needed
Slide
13-9a
Table
13.2
Adjusting Prices - Discounting
Discount
Quantity discount
Definition
Reduction in the price per
unit for purchasing a
larger quantity
Seasonal discount Price reduction offered
during times of slow
demand
Example
A catalog for Gardener’s
Supply Company offers
1 cedar planter for
$32.95 and 2 or more
for $30.00 each.
A ski resort offers lower
prices during the
summer.
Trade discount
Percentage reduction
from list price offered to
resellers
A publisher sells books to
a chain of stores for a
fraction of the retail price.
Cash discount
Incentive for buyers to pay An organization receives
quickly or a lower price for an invoice that reads,
payment of cash
“2/10 net 30.”
Slide
13-9b
Table
13.2
Adjusting Prices - Allowances
Discount
Definition
Example
Trade-in
allowance
Discount for providing a
product along with
monetary payment
A car dealer offers
$1,000 off the list price
in exchange for a buyer
trading in her used car.
Promotional
allowance
Price reduction in
exchange for the reseller
performing certain
promotional activities
A frozen-pizza maker
gives a price break to a
supermarket that
promises to feature the
product in its
advertising.
Slide
13-9c
Table
13.2
Adjusting Prices - Others
Discount
Definition
Example
Promotional
discount
Short-term discount to
stimulate sales or
convince buyers to try a
product
A Jiffy Lube franchise
passes out flyers
offering $5 off on an oil
change; the discount is
good for 30 days.
Loss leader
pricing
Setting prices near or
below cost in order to
attract customers to a
store
A supermarket features
bananas at 20 cents a
pound and Pampers
diapers at 50 percent
off; the price is below
cost, but the store
expects buyers to
purchase additional
items selling at a profit.
Slide
13-10
Every-Day Low Price
EDLP Strategy
Promotional
Discount Strategy
Slide
13-11
Table
13.3
Psychological Pricing
TYPE Technique
DESCRIPTION
Pricing
Definition
EXAMPLE
Example
Product
Prestige Pricing
Setting a high price to
image of high
Tableconvey
13.3anmissing
quality or exclusivity
The Porsche 911 turbo
coupe has a base price
of $105,000.
Odd-even pricing
Setting prices a few
dollars or cents below a
round number
Office Depot advertises
a GE cellular phone for
$39.99.
Bundle pricing
Offering several products
as a package at a single
price
A hotel quotes a rate for
an over-night stay that
includes breakfast the
next morning.
Slide
13-12
Geographic Pricing
Geographic Pricing
Pricing a good or service according to where it is
delivered.
FOB Origin Pricing
Seller’s price is for the goods at point of
shipment, where title passes from buyer to
seller.
Uniform Delivered Pricing Seller’s price includes shipping; title passes
where buyer receives the goods.
Single-zone Pricing
Pricing in which all buyers pay the same price,
including delivery.
Multiple-zone pricing
Pricing in which buyers in different zones pay
different delivery prices.
FOB with freight allowed
Pricing in which the seller allows the buyer to
deduct shipping costs from the quoted price of
the product.
Basing point pricing
Pricing in which the seller charges the quoted
price plus the cost of delivering from a basing
point where the product is made.
Slide
13-13
Evaluating Pricing
TYPE Response
DESCRIPTION
EXAMPLE
Example
Product
Competitor
Response
Consumer
Response
Response to Low Price war - repeated price reductions
Prices
Table 13.3 missing
Reposition as being higher quality
Response to
High Prices
Increase their own prices
Light Demand
A signal that the price may be too high
May have to modify other elements of
the marketing mix
Heavy Demand
A signal that the price may be too low
May have to modify other elements of
the marketing mix