ch 20 marketing final

determination of a specific price

A pricing strategy will yield a certain price or range of prices, which is the final step in the pricing process. Pricing strategies should help in setting a final price. Additionally, the way marketers use pricing in the marketing mix will affect the final price. Pricing remains a flexible and convenient way to adjust the marketing mix.

survival

Achieving this objective generally involves temporarily setting prices low, at times below costs, in order to attract more sales. This strategy can be useful in keeping a company afloat by increasing sales volume. Possible Action: adjust price levels so the firm can increase sales volume to match organizational expenses.

cost-plus pricing

Adding a specified dollar amount or percentage to the seller's cost. Used when production costs are difficult to predict Ex: custom-made equipment and commercial construction seller may increase stated costs to gain a larger profit base - disadvantage Popular in periods of rapid inflation, especially when the producer has to use raw materials that frequently fluctuate in price.

If the higher price against which the comparison is made is the price formerly charged for the product, the seller must have made the previous price available to customers for a reasonable time period. If sellers present the higher price as the one charged by other retailers in the same trade area, they must be able to demonstrate that this claim is true.

FTC guidelines on comparison discounting

product quality

High price may signal to customers that the product is high quality. more likely to survive in a competitive marketplace because they trust these products more, even if the prices are higher Possible Action: Set prices to recover research and development expenditures and establish a high-quality image.

assessment of target market's evaluation of price

The importance of price varies depending on the type of product, target market, and the purchase situation. Value is more than just a product's price. Combines price with quality attributes, which customers use to differentiate among competing brands.

special-event pricing

To increase sales volume, many organizations coordinate price with advertising or sales promotions for several or special situations. involves advertised sales or price cutting linked to a holiday, season, or event.

bait and switch

Use low price to entice customers into the store to sell them higher-priced products, occurs when retailers have no intention of selling the bait product if customers go to the store looking for the low-priced model and only find the high-priced model in stock, generates customer resentment unethical, and in some states it is even illegal.

pricing strategy

a course of action designed to achieve pricing objectives, which are set to help marketers solve the practical problems of setting prices.

cost-based pricing

adding a dollar amount or percentage to the cost of the product, which means marketers calculate and apply a desired level of profit to the cost of the product and apply it uniformly. Straightforward and easy-to-implement

status quo

can focus on several dimensions, such as maintaining a certain market share, meeting (but not beating) competitors' prices, achieving price stability, and maintaining a favorable public image. Can reduce a firm's risks Accountants and attorneys often operate in such an environment. Possible Action: Identify price levels that help stabilize demand and sales.

customary pricing

certain goods are priced on the basis of tradition Less common now Example: 25 cent gumballs sold in gumball machines

differential pricing

charging different prices to different buyers for the same quality and quantity of product.

markup pricing

commonly used by retailers, a product's price is derived by adding a predetermined percentage of the cost to the cost of the product. retailers do differently than warehouse clubs, rigid percentage markup for a specific product category (35 % for hardware) and (100 % for greeting cards) either as percentage of cost or percentage of selling price = markup/selling price

selection of a basis for pricing

cost, demand, and/or competition. analyzing the type of product, the market structure of the industry, the brand's market share position relative to competing brands, and customer characteristics. A high price may reduce demand for the product, but a low price will hurt profit margins and may instill in customers a perception that the product is of low quality.

selection of a basis for pricing types

cost-based, cost-plus, markup, demand-based, competition-based

cost

establishes a price minimum below which the firm will not be able to recoup its production and other costs.

product-line pricing

establishing and adjusting the prices of multiple products within a product line. goal is to maximize profits for an entire product line rather than focusing on the profitability of an individual product item. Provides pricing flexibility to marketers. When products in a line are complementary, sales increases in one item raise demand for other items. However, when products in a line function as substitutes for one another, buyers of one product in the line are unlikely to purchase one of the other products in the same line.

pricing objectives

goals that describe what a firm wants to achieve through pricing forms the basis for decisions for other stages of the pricing process short-term and long-term ones must be stated in explicit and measurable terms and have a time frame

market share

increasing a product's sales in relation to total industry sales. Possible Action: Adjust price levels so the firm can maintain or increase sales relative to competitors' sales.

odd-even pricing

involves ending a price with certain numbers strategy of setting prices using odd numbers that are slightly below whole-dollar amounts. aligns with the belief among many retailers that consumers respond more positively to odd-number prices, such as $4.99, than to whole-dollar prices, such as $5, for items where customers are looking for value. 9 and 5 are the most popular ending figures for odd-number prices. Even prices, on the other hand, are often used to give a product an exclusive or upscale image.

secondary-market pricing

means setting one price for the primary target market and a different price for another market. Often the price charged in the secondary market is lower. but higher when the costs of serving a secondary market are higher than normal

price skimming and penetration pricing

new-product pricing types

premium pricing

occurs when the highest quality product, or the most-versatile and most desirable version of a product, is assigned the highest price. Other products in the line are priced to appeal to price-sensitive shoppers or to those who seek product-specific features.

competition-based pricing

organization considers costs to be secondary to competitors' prices. Pricing influenced primarily by competitors' prices Common method among producers of homogeneous products, particularly when the target market considers price to be an important purchase consideration. firm may choose to set their prices below competitors' or at the same level.

bundle pricing

packaging together of two or more complementary products and selling them at a single price. the single price generally is markedly less than the sum of the prices of the individual products.

tensile pricing

part of random discounting, used when putting products on sale, making a broad statement about price reductions, as opposed to detailing specific price discounts.

demand-based pricing

pay a higher price when demand for the product is strong and a lower price when demand is weak. is better to take a lower profit margin on a sale than no revenue at all. used by many service industries, including the airline and bus venue appropriate for industries in which companies have a fixed amount of available resources that are perishable, such as airline seats, hotel rooms, concert seats, etc. must have the ability to estimate demand accurately.

prestige pricing

prices are set at an artificially high level to convey a quality image. Used especially when buyers associate a higher price with higher quality.

reference pricing

pricing a product at a moderate level and physically positioning it next to a more expensive model or brand in the hope that the customer will use the higher price as a reference price (i.e., a comparison price). customer is expected to view the moderate price more favorably than he or she would if the product were alone.

psychological pricing

pricing attempts to influence a customer's perception of price to make a product's price more attractive. encourage purchase based on consumers' emotional responses, rather than on economically rational ones. used primarily for consumer products rather than business products

• Survival • Profit • Return on Investment • Market Share • Cash Flow • Status Quo • Product Quality

pricing objectives

price leaders

products priced near, below cost, or below usual markup most often used in supermarkets and restaurants to attract customers by offering them especially low prices on a few items, with the expectation that they will purchase other items as well.

cash flow

recover cash as quickly as possible. oversimplifies the contribution of price to profits. If this pricing objective results in high prices, competitors with lower prices may gain a large share of the market. Possible Action: Set Price Levels to encourage rapid sales.

random discounting

reduce their prices temporarily on a nonsystematic basis. not able to predict when the reductions will occur. used to attract new customers and to draw attention to a new product.

demand

sets an effective price maximum above which customers are unlikely to buy the product

comparison discounting

sets the price of a product at a specific level and simultaneously compares it with a higher price. The higher price may be the product's previous price, the price of a competing brand, the product's price at another retail outlet, or a manufacturer's suggested retail price.

multiple-unit pricing

setting a single price for two or more units of a product, such as two cans for 99 cents, rather than 50 cents per can. Best for frequently-purchased products, this strategy can increase sales by encouraging consumers to purchase multiple units when they might otherwise have only purchased one at a time. Discount stores and especially warehouse clubs, like Sam's club and Costco, retailers, and especially supermarkets use this strategy

evaluation of competitors' prices

should be a regular part of marketing research. essential for a marketer. Don't want to sell too high, because it won't sell as well, or at a price that is significantly below because customers may believe the product is of low quality. ensure that a firm's prices are the same as, or slightly lower than, competitors' prices. In some cases, an organization's prices are designed to be slightly above competitors' prices to lend an exclusive image and to signal product quality.

1. Development of pricing objectives 2. Assessment of target market's evaluation of price 3. Evaluation of competitors' prices 4. Selection of a basis for pricing 5. Selection of a pricing strategy 6. Determination of a specific price

stages for establishing prices

price skimming

strategy of charging the highest possible price for a product during the introduction stage of its life cycle. Has several benefits: o can generate much-needed initial cash flows to help offset development costs. o Protects the marketer from problems that arise when the price is set too low to cover costs. Can be dangerous as well: oCan make the product appear more lucrative than it actually is to potential competitors. o A firm also risks misjudging demand and facing insufficient sales at the higher price.

yield management

strategy of maximizing revenues by making numerous price changes in response to demand, competitors' prices, or environmental conditions.

captive pricing

the basic product in a product line is priced low, but the price on the items required to operate or enhance it are higher.

isolation effect

the basis of reference pricing where an alternative is less attractive when viewed by itself than when compared with other alternatives.

survival

the most fundamental pricing objective is

price lining

the strategy of selling goods only at certain predetermined prices that reflect explicit price breaks. Eliminates minor price differences from the buying decision - both for customers and for managers who buy merchandise to sell in these stores. Basic assumption is that the demand for various groups or sets of products is inelastic (insensitive to changes in price).

penetration pricing

the strategy of setting a low price for a new product. build market share quickly to encourage product trial by the target market and discourage competitors from entering the market less flexible for a marketer than price skimming, more difficult to raise the price of a product than to lower especially beneficial when a marketer suspects that competitors could enter the market easily. disadvantage is that it places a firm in a less-flexible pricing position.

periodic discounting

the temporary reduction of prices on a patterned or systematic basis annual holiday sales/regular seasonal sales A problem for marketers is that customers can predict when the reductions will occur

return on investment

this objective generally requires some trial and error. used by many pharmaceutical companies because of the high level of investment in research. possible Action: Identify price levels that enable the firm to yield targeted ROI.

profit

this objective is rarely operational because its achievement is difficult to measure. tend to be set at levels that the owners and top-level decision makers view as satisfactory and attainable. May be stated in terms of either actual dollar amounts or a percentage of sales revenues. Possible Action: Identify price and cost levels that allow the firm to maximize profit.

bait pricing

to attract customers, marketers may put a low price on one item in the product line with the intention of selling a higher-priced item in the line. As long as a retailer has sufficient quantities of the advertised low-priced model available for sale, this strategy is acceptable

cost-plus and markup pricing

two types of cost-based pricing

negotiated pricing, secondary-market pricing, periodic discounting, and random discounting.

types of differential pricing

Captive pricing, premium pricing, bait pricing, and price lining

types of product-line pricing

Price leaders, special-event pricing, and comparison discounting.

types of promotional pricing

reference pricing, bundle pricing, multiple-unit pricing, everyday low prices (EDLP), odd-even pricing, customary pricing, and prestige pricing

types of psychological pricing

professional pricing

used by people who have great skill or experience in a particular field. This concept carries the idea that professionals have an ethical responsibility not to overcharge customers.

Everyday Low Prices (EDLP)

used to reduce or eliminate the use of frequent short-term price reductions marketer sets a low price for its products on a consistent basis, rather than setting higher prices and frequently discounting them. major issue: customers can have mixed responses, maybe a marketing gimmick and not truly the good

negotiated pricing

when the final price is established through bargaining between the seller and the customer. Even when there is a predetermined stated price or a price list, manufacturers, wholesalers, and retailers still may negotiate to establish the final sales price.