Chapters 13 & 14 Marketing

Price Lining

A firm that is selling not just a single product but a line of products may price them at a number of different specific pricing points. For example, a department store manager may price a line of casual slacks at $59, $79, and $99.

Competition Pricing Strategies

Customary, Loss Leader, Yield Management

Pricing constraints

Demand for the product class, product or brand, newness of the product, single vs. a product line, cost of producing the marketing the product, cost of changing prices and time period they apply, single product vs. a product line, competitors prices

Estimating Demand

Driven by a change in price, shifts in demand curve can be driven by factors other than price

Value benefits

Functional, social, personal

Prestige Pricing

Involves setting a high price so that quality- or status conscious consumers will be attracted to the product and buy it.

Target Pricing

Manufacturers will sometimes estimate the price that the ultimate consumer would be willing to pay for a product. They then work backward through markups taken by retailers and wholesalers to determine what price they can charge the wholesalers for the product.

Demand Pricing Strategies

Odd Even, Prestige, Bundle, Target

Factors affecting demand

Price, consumer tastes, availability of substitutes, consumer income, can impact demand without any change in price

Inelastic Demand

Product is NOT price sensitive. Change in Qd is less than the % change in price

Elastic Demand

Product is price sensitive. Change in Qd is greater than the % change in price

Pricing Objectives

Profit (3 objectives: Managing for long-run profits, maximizing current profit, target return, measured in ROI or ROA), sales, market share, unit volume, survival, social responsibility

Value costs

Psychological, temporal, monetary

Unitary Demand

Sales revenue remains the same. Change in Qd is identical to the % change in price

Penetration Pricing Strategy

Setting a low initial price on a new product to appeal to the mass market. The primary objective with this strategy is to gain market share. Would be elastic pricing

Odd-Even Pricing

Setting a price a few dollars or cents under an even number. For example, Sears offers a Craftsman radial saw for $499.99 instead of $500.

Skimming Pricing Strategy

Setting the highest initial price that customers are willing to pay. As demand is satisfied, the firm lowers the price to attract another more price sensitive segment. Would be inelastic pricing

Alternatives to raising shelf price if product costs increase

Shrink the amount of product (downsizing), substitute less expensive materials or ingredients, reduce or remove product features or services, use less expensive packaging material, promote larger unit sizes to keep down the relative cost of packaging reduced, reduce the number of sizes and models offered

Yield Management Pricing

The charging of different prices to maximize revenue for a set amount of capacity at any given time.

Bundle Pricing

The marketing of two or more products in a single package price. Fore example, Delta Air Lines offers vacation packages that include airfare, car rental and lodging.

Value

Value is the ratio of perceived benefits to price, or Perceived Benefits/Price. Price is often used to indicate value. This relationship shows that for a given price, as perceived benefits increase, value increases.