What’s Happening?
 http://www.youtube.com/watch?feature=player_embedded&v
=9mIBKifOOQQ
Pricing Strategies
Chapter 11
Price Defined

The amount of money charged for a product or
service that consumers exchange for the benefits
of having or using the product or service.
Most flexible element in marketing mix
 Major impact on store/product/service image

What else is price?

Value


Product power
to stimulate
exchange
Barter

Money-less
exchange

Other Terms:



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Rent
Fee
Donation
Toll
Honorarium
Tuition
Price as a Marketing Mix variable
Price Competition versus Nonprice Competition
John Deere uses nonprice competition by emphasizing quality
and workmanship
The Fundamentals of
Pricing Strategy
1.
2.
3.
4.
5.
Set pricing objectives
Establish importance to target market
Understand demand
d
s
Understand costs
Determine strategy
Relating Pricing objectives to
Marketing objectives
Company
objectives
Product objectives
Marketing
objectives
Distribution objectives
Promotion objectives
Pricing
strategies
and
policies
Price objectives
Actual
prices
Price Elasticity of Demand

Price elasticity: a measure of the sensitivity of demand to
changes in price

Elastic demand: when a percentage change in price causes a much
larger percentage change in demand
 Products that have many substitutes
 Consumption is discretionary
 Pricing strategy normally to lower price to sell more
Inelastic demand: when a percentage change in price causes a
much smaller percentage change in demand
 Products that have few, if any substitutes
 Consumption is necessary
 Pricing strategy is to raise prices to earn more profits

Price Elasticity of Demand
Demand Curve
Price
12
10
P28
P16
1
4
2
0
0
5
10
Q2 Q1
1
15
Q2
1
20
25
Q1
30
35
Quantity demanded
40
Price Adjustments

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
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Cash Discounts
Trade Discounts
Quantity Discounts
Seasonal Discounts
Chain Discounts
Promotional Allowances
Seasonal discounts are a common
marketing strategy to encourage purchases
Pricing Strategies
Differential Pricing
strategies



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
Variable pricing
Segment pricing
Skimming
Periodic discounting
Random discounting
Competitive Pricing
strategies
 Meeting the competition
 Below the competition
 Price leadership
 Following the leader
 Penetration pricing
Pricing Strategies
Product-line Pricing
strategies
 Captive pricing
 Leader pricing
 Bait pricing
 Price lining
 Price bundling
 Multiple-unit
pricing
Psychological and image
Pricing strategies
 Reference pricing
 Odd and even pricing
 Prestige pricing
Marketing Math
Establishing the Exact price
1.Markup on Selling Price:
Amount added on
---------------------------Selling price
= % markup on selling price
2. Markup on Cost:
Amount added on
---------------------------Cost
= % markup on cost
Markup through a channel of
distribution
Manufacturer
Wholesaler
Retailer
Cost
$20.00 Cost
$25.00 Cost
$29.41
20% markup $ 5.00 15% markup $ 4.41 41% markup $20.59
Selling price $25.00 Selling price $29.41 Selling price $50.00