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.
