PRICING
 Often
the only marketing mix
variable allowing for immediate
competitive response
 Important part of product
positioning
 Long term effects of pricing
decisions--your decisions may
come back to haunt you!
MKTG 370
PRICING/DISTRIBUTION
Lars Perner, Instructor
1
One View of Price
 Price
=
resources given up
_____________________________________
goods received
 E.g., 12 bullets for
$6.00 = $0.50 per
bullet
----> several different
ways to change
prices
MKTG 370
PRICING/DISTRIBUTION
Lars Perner, Instructor
2
Introductory Effects



In an experiment,
laundry detergent was
introduced at $0.49 in
one condition and
$0.79 in another.
After 8 weeks, price
was raised to $0.79 for
low price intro
condition.
There were higher
cumulative sales in
high price intro.
MKTG 370
1200
1000
800
Units
sold
Low price
intro
High price
intro
600
400
200
0
PRICING/DISTRIBUTION
8
16
Weeks
Lars Perner, Instructor
3
Ways to Change Prices
Sticker
price
Quantity (e.g., smaller candy bars for
same price and/or fewer products per
package)
Quality (charge separately for services or
“dilute” product)
Terms (e.g., charge for delivery)
MKTG 370
PRICING/DISTRIBUTION
Lars Perner, Instructor
4
Some Approaches to Pricing
Cost-plus: Add fixed percentage markup
 Penetration pricing: low intro price ---> volume
 Skimming: high intro price ---> take advantage of price
insensitive consumers
 Buyer-based

• perceived value
• going-rate (competition)
GREED
IS
GOOD!
---> Balancing cost and
market considerations
MKTG 370
PRICING/DISTRIBUTION
Lars Perner, Instructor
5
Consumer Price Awareness
A
survey revealed of consumers
who had just selected a product
suggested::
• Avg. time spent before departing
from product area: 12 seconds
• Avg. no. of products inspected:
1.2; only 21.6% claimed to check
price of non-chosen brand
• 55.6% could state price of just
chosen product within 5%
MKTG 370
PRICING/DISTRIBUTION
Lars Perner, Instructor
6
Consumer Reference Prices


Consumers typically have some
expectation of what they will pay. This
is based on:
• previous experience
• common sense
• perceived fairness
Two kinds of reference prices:
• Internal: Based on consumer’s
memory.
• External: Based on environment
(e.g., signs, other products in the
store)
MKTG 370
PRICING/DISTRIBUTION
Lars Perner, Instructor
7
Internal Reference Prices
Consumers tend to develop some memory of prices of
frequently purchased items ---> to make store prices
look low, you may want to price especially salient
products lower
 More knowledgeable consumers typically have tighter
price range expectations
 Reference prices are constantly updated to some
extent, but are hard to change upwards--certain
unreasonable “stimuli” (prices) may be rejected as
unreal
 Consumer reference prices tend to be lower than actual
prices ---> “sticker shock”

MKTG 370
PRICING/DISTRIBUTION
Lars Perner, Instructor
8
External Reference Prices
 Reference
prices
provided by seller or
environment
 E.g.,
• “Was $100.00; now
$69.95”
• “MSRP $3.99; our price
$2.49”
• “Sold elsewhere for
$20.00; our price
$14.99”
MKTG 370
PRICING/DISTRIBUTION
Lars Perner, Instructor
9
The Promotion Signal
A
segment of consumers will
respond to negligible
discounts--e.g., “SALE!
$3.95 (Was $4.02).
 However, merely placing a
sign “EVERYDAY LOW PRICE”
randomly also increased
sales of affected products.
MKTG 370
PRICING/DISTRIBUTION
SALE!
Hurry!
Lars Perner, Instructor
10
Odd/Even Pricing--Does It Have
an Impact?
 Theory:
$3.00 is rounded to $3.00 while $2.99
is rounded to “$2.00 plus change”
 Reality: Studies in U.S. have found some
impact; no impact found in Germany
 Note that odd pricing may signal receiving a
bargain, which may nor may not be compatible
with the desired product image
 Odd pricing has typically been used by tradition
(initially implemented to force cashiers to ring
up purchases).
MKTG 370
PRICING/DISTRIBUTION
Lars Perner, Instructor
11
Pricing Interests of Retailers
and Manufacturers
 Retailers
generally seek to maximize category
profits--for most product categories, price cuts
lead to switching between brands--not higher
category sales. Thus, retailers are reluctant to
pass through any price cuts to consumers.
 In the opposite direction, manufacturers may also
resent their products being used as loss leaders
(this is believed to hurt brand image).
MKTG 370
PRICING/DISTRIBUTION
Lars Perner, Instructor
12