19-5: Factors that Affect Pricing Decisions

price fixing

- An agreement among competing firms to raise, lower, or maintain prices for mutual benefit - to avoid appearance of price fixing, marketers must develop independent pricing policies and set prices in wages that do not even hint at collision

Channel member expectations

- a channel member expects to receive profit for functions it performs - amount of profit expected depends on what the intermediary could make if it were handling a competing product instead - amount of time and resources required to carry the product influences intermediaries' expectations - channel members often expect producers to give discounts for large orders and prompt payment - at times, resellers expect producers to provide several support activities, such as sales training, service training, repair advisory service, cooperative ad, sales promo, and a program for returning unsold merchandise to the producer

costs

- a company may temporarily sell products below cost to match competition, generate flow, or increase market share - in long run, a firm cannot survive by selling products below costs - to maintain market share and revenue in an increasingly price-sensitive market, many marketers have concentrated on reducing costs - labor-saving tech, a focus on quality, and efficient manufacturing processes have brought productivity gains that translate into reduced costs and lower prices for customers - marketers must consider the costs the product shares with others in product line - products can often share some costs, especially costs of research and development, production, and distribution - most marketers view a product's cost as a minimum/floor below which the product cannot be priced

external reference price

- a comparison price provided by others (retailers/manufacturers) - provides reference point for consumers unfamiliar with product category

internal reference price

- a price developed in the buyer's mind through experience with the product - reflects belief that a product should cost as a certain amount - less confident customers tend to have higher internal reference prices than customers with greater confidence - frequent buyers are most likely to judge high prices unfairly

marketing-mix variables

- all marketing-mix variables are highly interrelated - pricing decisions can influence evaluations and act associated with product, distribution, and promo - price frequently affects the demand for that item, particularly for products with elastic demand - high price may = lower unit sales = higher production costs per unit - lower price = increased unit sales - individuals who associate quality with a high price are likely to purchase products with well-established and recognizable brnad names

promotion

- bargain prices often appear in ads - premium prices are less likely to be promoed - higher=priced products are more likely than lower-priced ones to require personal selling - price structure can affect a salesperson's relationships with customers - complex pricing structure takes longer to explain to customers, more likely to confuse potential buyers, and may cause misunderstandings that result in long-term customer dissatisfaction

a global pricing issue:

- counterfeit goods - bought at significant low prices - regulated on a country-by-country basis - more sales that are lost to the "gray market" means lower profits and higher prices for legitimate goods

Customer's Interpretation and Response

- determined by their assessment of value - customers consider product attributes, benefits, advantages, disadvantages, the probability of using the product, and possibly the status associated with the product

predatory pricing (undercutting)

- involves the intent to set a product's price so low that rival firms cannot compete and withdraw from marketplace - without intent to drive out competitors, there is not predatory pricing

competition

- marketer needs to know competitors' prices to adjust accordingly - matching competitors' prices in an important strategy for some - assess how competition responds - the structure that characterizes the industry to which a firm belongs affects flexibility of price setting - when an org operates as a monopoly and is regulated, it can set whatever prices the market will bear - company might not price product at highest=possible level to avoid government regulation/penetrate a market by using a lower price - if monopoly is regulated, it normally has less pricing flexibility: the regulatory body lets it set prices that generate a reasonable but not excessive return - a gov=owned monopoly may price products below cost to make them accessible to people who could not afford them - sometimes charge higher prices to control demand - oligopolies can raise prices in hope that competitors will do the same and vice verse: generally, there is very little advantage gained through price cuts in an oligopolistic market structure bc competitors will often follow suit - firms in a monopolistic competitive market structure are likely to practice nonprice competition - in perfect competition, marketer has no flexibility to setting price (farmers)

orgnaizaitonal and marketing objectives

- marketers should set prices that are consistent with the org's goals and mission - pricing decisions should be compatible with the firm's marketing objectives

8 categories of factors that affect pricing decisions

- organizational an d marketing objectives - pricing objectives - costs - channel member expectations - customer interpretation and response competition - legal and regulatory issues - other marketing-mix variables

distirbution

- premium-priced products are often marketed through selective/exclusive distribution - increase in physical distribution costs (shipping) may have to be passed on to customers - when setting price, profit margins of marketing channel members (whole/retailers) must also be considered - must be adequately compensated for functions they perform

Example of pricing decisions being compatible with the firm's marketing objectives

- suppose one of a producer's marketing objectives is a 12% increase in unit sales by end of following year - assuming buyers are price sensitive, increasing price/setting a price above the average market price would not be the line with this objective

which laws prohibit deceptive pricing?

FTC Act and Wheeler-Lea Act

Which laws limit use of price differentials?

Robinson-Patman Act and Clayton Act

example of premium=priced products often marketed through selective/exclusive distribution

Solgar focuses on health food outlets to get its products to consumer

legal and regulatory issues

To control inflation, the U.S. federal government may enact: Price Controls, Price Freezes - to control rate of price increases

Example of marketers focusing on reducing costs

after losing market share to Airbus, Boeing embarked upon a number of cost-cutting measures

Types of pricing objectives example

an org that uses pricing to increase its market share would likely set the brand's price BELOW competing brands of similar quality to attract customers

value-conscious

concerned about price and quality of a product

prestige conscious

drawn to products that signify prominence and status

price discrimination

employing price differentials that injure competition by giving one or more buyers a competitive advantage

Sherman Antitrust Act

prohibits conspiracies to control pieces, and in interpreting the activity, cts have ruled that price fixing among firms in an industry is illegal

price conscious

striving to pay low prices

deceptive pricing

the use of false/misleading statements or practices to persuade buyers that a product is a better deal than it really is

customer interpretation of price

what the price means or what it communicates to customers

Example of increased physical distribution costs being passed on to customers

when fuel prices increase, shipping companies and airlines pass on additional costs through surcharges/higher prices

customer response to price

whether price will move customers closer to purchase product and the degree to which the price enhances their satisfaction with the purchase experience and with the product after purchase