MARKETING MANAGEMENT 12 th edition. 14 Developing Pricing Strategies and Programs

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1 MARKETING MANAGEMENT 12 th edition 14 Developing Pricing Strategies and Programs Kotler Keller

2 Chapter Questions How do consumers process and evaluate prices? How should a company set prices initially for products or services? How should a company adapt prices to meet varying circumstances and opportunities? When should a company initiate a price change? How should a company respond to a competitor s price challenge? 14-2

3 Whirlpool s Duet combo is nearly four times the price of comparable models 14-3

4 Synonyms for Price Rent Tuition Fee Fare Rate Toll Premium Honorarium Special assessment Bribe Dues Salary Commission Wage Tax 14-4

5 Common Pricing Mistakes Determine costs and take traditional industry margins Failure to revise price to capitalize on market changes Setting price independently of the rest of the marketing mix Failure to vary price by product item, market segment, distribution channels, and purchase occasion 14-5

6 Consumer Psychology and Pricing Reference Prices Price-quality inferences Price endings Price cues 14-6

7 Table 14.1 Possible Consumer Reference Prices Fair price Typical price Last price paid Upper-bound price Lower-bound price Competitor prices Expected future price Usual discounted price 14-7

8 Table 14.2 Consumer Perceptions vs. Reality for Cars Overvalued Brands Land Rover Kia Volkswagen Volvo Mercedes Undervalued Brands Mercury Infiniti Buick Lincoln Chrysler 14-8

9 Price Cues Left to right pricing ($299 versus $300) Odd number discount perceptions Even number value perceptions Ending prices with 0 or 5 Sale written next to price 14-9

10 When to Use Price Cues Customers purchase item infrequently Customers are new Product designs vary over time Prices vary seasonally Quality or sizes vary across stores 14-10

11 Steps in Setting Price Select the price objective Determine demand Estimate costs Analyze competitor price mix Select pricing method Select final price 14-11

12 Step 1: Selecting the Pricing Objective Survival Maximum current profit Maximum market share Maximum market skimming Product-quality leadership 14-12

13 Figure 14.1 Price Tiers in the Ice Cream Market 14-13

14 Step 2: Determining Demand Price Sensitivity Estimating Demand Curves Price Elasticity of Demand 14-14

15 Figure 14.2 Inelastic and Elastic Demand 14-15

16 Step 3: Estimating Costs Types of Costs Accumulated Production Activity-Based Cost Accounting Target Costing 14-16

17 Cost Terms and Production Fixed costs Variable costs Total costs Average cost Cost at different levels of production 14-17

18 Figure 14.4 Cost per Unit as a Function of Accumulated Production 14-18

19 9 Lives Uses Target Costing 14-19

20 Step 5: Selecting a Pricing Method Markup pricing Target-return pricing Perceived-value pricing Value pricing Going-rate pricing Auction-type pricing 14-20

21 Figure 14.6 Break-Even Chart 14-21

22 Auction-Type Pricing English auctions Dutch auctions Sealed-bid auctions 14-22

23 Step 6: Selecting the Final Price Impact of other marketing activities Company pricing policies Gain-and-risk sharing pricing Impact of price on other parties 14-23

24 Price-Adaptation Strategies Geographical Pricing Discounts/Allowances Promotional Pricing Differentiated Pricing 14-24

25 Price-Adaptation Strategies Countertrade Barter Compensation deal Buyback arrangement Offset Discounts/ Allowances Cash discount Quantity discount Functional discount Seasonal discount Allowance 14-25

26 Promotional Pricing Tactics Loss-leader pricing Special-event pricing Cash rebates Low-interest financing Longer payment terms Warranties and service contracts Psychological discounting 14-26

27 Differentiated Pricing and Price Discrimination Customer-segment pricing Product-form pricing Image pricing Channel pricing Location pricing Time pricing Yield pricing 14-27

28 Table 14.5 Profits Before and After a Price Increase 14-28

29 Increasing Prices Delayed quotation pricing Escalator clauses Unbundling Reduction of discounts 14-29

30 Figure 14.7 Price-Reaction Program for Meeting Competitor s Price Cut 14-30

31 Brand Leader Responses to Competitive Price Cuts Maintain price Maintain price and add value Reduce price Increase price and improve quality Launch a low-price fighter line 14-31

32 Marketing Debate Is the right price a fair price? Take a position: 1. Prices should reflect the value that consumers are willing to pay. 2. Prices should primarily just reflect the cost involved in making a product

33 Marketing Discussion As a consumer, which pricing method do you personally prefer to deal with? Why? 14-33

15/02/ Developing Pricing Strategies and Programs. Chapter Questions. Synonyms for Price

15/02/ Developing Pricing Strategies and Programs. Chapter Questions. Synonyms for Price 1 14 Developing Pricing Strategies and Programs Chapter Questions How do consumers process and evaluate prices? How should a company set prices initially for products or services? How should a company