Chapter 9 Marketing
Three major pricing strategies
(1) customer-value based pricing, (2) cost-based pricing, (3) competition-based pricing
In assessing competitors' pricing strategies, what questions should the company ask?
(1) first, how does the company's market offering compare with competitors' offerings in terms of customer value? (2) second, how strong are current competitors? (3) third, what are their current pricing strategies
What are the two types of customer value-based pricing?
(1) good-value pricing, (2) value-added pricing
What are the ways in which a company handles pricing?
(1) in small companies, prices are often set by top management rather than by the marketing or sales departments (2) in large companies, pricing is typically handled by divisional and product managers. (3) in industries in which pricing is a key factor, companies often have pricing departments to set the best prices or help others set them. These departments report to the marketing department or top management.
Price strategies
(1) introduction, use cost-lus (2) growth, price to penetrate market (3) maturity, price to match or beat competitors, (4) decline, cut price
Break-even pricing
(or target return pricing), the firm tries to determine the price at which it will break even or make the target return it is seeking. Uses the concept of a break-even chart, which shows the total cost and total revenue expected at different sales volume levels.
what are the types of geographical pricing?
- FOB-origin pricing - uniform delivered pricing - zone pricing - basing-point pricing - freight-absorption pricing
what are the several forms of promotional pricing?
- a seller may simply offer discounts from normal prices to increase sales and reduce inventories - sellers also use special-event pricing in certain seasons to draw more customers - limited time offers such as online flash sales, can create buying urgency and make buyers feel lucky to have gotten in on the deal - manufacturers sometimes offer cash rebates to consumers who buy the product from dealers within a specified time - some manufacturers offer low-interest financing, longer warranties, or free maintenance to reduce the consumer's price
what are the types of segmented pricing?
- customer-segment pricing - product form pricing - location-based pricing - time-based pricing
What situations lead to a firm cutting its price?
- excess capacity - falling demand in the face of strong price competition or a weakened economy - a company may also cut prices in drive to dominate the market through lower costs. Either the company starts with lower costs than its competitors, or it cuts prices in the hope of gaining market share that will further cut costs through larger volume
What conditions are needed for market-penetration testing to work?
- first, the market must be highly price sensitive so that a low price produces more market growth - second, production and distribution costs must decrease as sales volume increases. - finally, the low price must help keep out the competition, and the penetration pricer must maintain its low-price position. Otherwise, the price advantage may be only temporary
What conditions do the market-skimming pricing tactic work?
- first, the product's quality and image must support its higher price, and enough buyers must want the product at that price. - second, the costs of producing a smaller volume cannot be so high that they cancel the advantage of charging more. - finally, competitors should not be able to enter the market easily and undercut the high price
What other external factors must the company consider when its external environment changes?
- it must know what impact is prices will have *on other parties* in its environment. - the *government* is another important external influence on pricing decisions. - finally, social concerns need to be considered.
What broad strategies can a company consider when bringing out a new product, and its pricing?
- marketing-skimming pricing - market-penetration pricing
Internal factors
- overall marketing strategy, objectives, and mix - organizational considerations
What conditions must exist for segmented pricing to work?
- the market must be able to be segmented, and segments must show different degrees of demand - the costs of segmenting and reaching the market cannot exceed the extra revenue obtained from the price difference - segmented pricing should also be legal segmented pricing = price discrimination
What are the adverse effects of promotional pricing?
- used too frequently, price promotions can create "deal-prone" customers who wait until brands go on sale before buying them - in addition, constantly reduced prices can erode a brand's value in the eyes of customers. - marketers sometimes become addicted to promotional pricing, especially in tight economic times. they use price promotions as a quick fix instead of sweating through the difficult process of developing effective longer-term strategies for building their brands.
external factors
-market and demand - economy - impact on other parties in its environment
How does dynamic pricing remain legal?
As long as companies do not discriminate based on age, gender, location, or other similar characteristics.
International pricing
Companies that market their products internationally must decide what prices to charge in different countries.
Thanks to the ____________, consumers can get instant product and price comparisons from thousands of vendors at price comparison sites.
Internet
When does deceptive pricing occur?
Occurs when a seller states prices or price savings that mislead consumers or are not actually available to consumers. Involves bogus reference or comparison prices, as when a retailer sets artificially high regular prices and then announces "sale" prices close to its previous everyday prices
What does federal legislation state on pricing within channel levels?
States that sellers must set prices without talking to competitors, i.e., price-fixing is illegal, and the companies found guilty of these practices can receive heavy fines
What does federal legislation state on pricing across channel levels?
The Robinson-Patman Act seeks to prevent unfair price discrimination by ensuring that sellers offer the same price terms to customers at a given level of trade.
Oligopolistic competition
The market consists of only a few large sellers. Because there are few sellers, each seller is alert and responsive to competitors' prcing strategies and marketing moves.
What advantages does dynamic/fluid pricing offer?
These days, online offers and prices might well be based on what specific customers search for and buy, how much they pay for other purchases, and whether they might be willing and able to spend more.
Target costing
a company's target pricing starts with an ideal selling price, then it targets costs that will ensure that the targeted price is met.
Laws also prohibit retail or resale price maintenance, that is ....
a manufacturer cannot require dealers to charge a specified retail price for its product
What is an allowance?
a promotional money paid by manufacturers to retailers in return for an agreement to feature the manufactuer's products in some way
cost-plus pricing
adding a standard markup to the cost of the product.
Fixed costs
are costs that do not vary with production or sales level.
Total costs
are the sum of the fixed and variable costs for any given level of production.
economic conditions have a strong impact on the firm's pricing strategies. Factors such as a _____________ or _________________, ______________ and _____________ ___________ affect pricing decisions.
boom, recession, inflation, interest rates
As the weakened global economy has slowed growth in both domestic and emerging markets, many companies are shifting their sights to include a new target the " ________________ of the _____________", *the vast untapped market consisting of the world's poorest consumers.
bottom of the pyramid
What is the buyer's perspective of a price cut?
brand wants to get a better deal on an exclusive product product's quality has been reduced company's image has tarnished
promotional pricing
companies will temporarily price their products below list price to create buying excitement and urgency
What is the competitor's perspective of a price cut?
company is trying to grab a larger market share. company is doing poorly and trying to boost its sales. company wants the whole industry to cur prices to increase total demand.
a major factor in price increases is ________ _______. rising costs squeeze profit margins and lead companies to pass cost increases along to customers.
cost inflation
The high-sales volume results (from market-penetration) in falling ________ allowing companies to cut their prices even further
costs
__________ play an important _________ in setting international prices
costs; role
The most obvious response to the new economic realities is to ___________ ___________ and ____________ ___________ because lower prices make products more affordable and help spur short-term sales.
cut prices; offer discounts
Each price the company might charge will lead to a different level of _________.
demand
elastic demand
demand changes greatly with a small change in price
inelastic demand
demand hardly changes with a small change in price
Most companies try to measure their demand curves by estimating ______________ at _____________ __________.
demand; different prices
customer-segment pricing
different customers pay different prices for the same product or service
product form pricing
different versions of the product are priced differently, but not according to differences in their costs
What are the price adjustment strategies that companies may adopt?
discount and allowance pricing, segmented pricing, psychological pricing, promotional pricing, geographical pricing, dynamic pricing, international pricing
pricing is a _________ process. companies design a pricing structure that covers all their products. Companies change this structure over time and adjust it to account for different customers and situations. Pricing strategies usually change a s a product passes through its life cycle (PLC).
dynamic
What factors does international pricing depend on?
economic conditions, competitive situations, laws and regulations, nature of the wholesailing and retailing system, consumer perceptions
Price has become a key element in the international marketing strategies of companies attempting to enter ___________ markets.
emerging
Typically, entering such markets has meant targeting the ____________ ___________ ____________ in developing countries.
exploding middle classes
zone pricing
falls between FOB-origin pricing and uniform-delivered pricing. The company sets up two or more zones. All customers within a given zone pay a single total price; the more distant the zone, the higher the price
Why is market pricing popular?
first, sellers are more certain about costs than about demand. By tying the price to cost, sellers simplify pricing. Second, when all firms in the industry use this pricing method, prices tend to be similar and price competition is minimized.
A company's costs take two forms: ______________ and ___________
fixed; variable
Dynamic pricing is especially prevalent online, where the Internet seems to be taking us back to anew age of ___________ ____________.
fluid pricing
A decision to position the product on ___________ - ____________ ____________ will mean that the seller must charge a higher price to cover higher costs.
high-performance quality
The competitor can ___________ a company price cut in many ways. It might think the company is trying to __________________________ or that it's doing poorly and trying to boost its sales. Or it might think that the company wants the whole industry to cut prices to increase total demand.
interpret; grab a larger market share
location-based pricing
involves a company charging different prices for different locations, even though the cost of offering each location is the same
Value-added pricing
involves attaching value-added features and services to differentiate a company's offers and then charging higher prices.
Competition-based pricing
involves setting prices based on competitors' strategies, costs, prices, and market offerings.
Cost-based pricing
involves setting prices based on the costs of producing, distributing, and selling the product plus a fair rate of return for the company's effort. Companies with lower costs can set lower prices that result in smaller margins but greater sales and profits. Other companies pay higher costs so that they can ad value and claim higher prices and margins.
product bundle pricing
it refers to combining several products and offering the bundle at a reduced price
product line pricing
it refers to determining the price steps to set between various products in a product line based on cost differences between the products, customer evaluations of different features, and competitors' prices.
by-product pricing
it refers to setting a price for by-products in order to make the main product's price more competitive
captive-product pricing
it refers to setting a price for products that must be used along with a main product, such as blades for a razor and games for a video-game console
optional-product pricing
it refers to the pricing of optional or accessory products along with a main product.
And producers whose resellers are expected to support and promote their products may have to build _____________ _______________ _____________ into their prices.
larger reseller margin
However, such price cuts can have undesirable _________-____________ ______________. Once a company cuts prices, it's difficult to raise them again when the economy recovers.
long-term consequences
A price increase, which would normally _________ ______________, may have some positive meanings for buyers.
lower sales
Companies often position their products on price and then tailor other ______________ _____________ ________ to the prices they want to charge.
marketing mix decisions
Predatory pricing
means selling below cost with the intention of punishing a competitor gaining higher long-run profits by putting competitors out of business
FOB-origin pricing
means that the goods are placed *free on board* a carrier, hence FOB. At that point, the title and responsibility pass to the customer, who pays the freight from the factory to the destination.
Other companies de-emphasize price and use other marketing mix tools to create _____________ __________. Often, the best strategy is not to charge the lowest price but rather to differentiate the marketing offer to make it worth a higher price.
non-price positions
time-based pricing
occurs when a firm varies its price by the season, the month, the day, and even the hour
Good-value pricing
offers just the right combination of quality and good service at a fair price. This pricing involves introducing less expensive versions of established, brand name products or new lower-price lines. It also involves redesigning existing brands to offer more quality for a given price or the same quality for less.
Another factor leading to price increases is ________-_________, however, when raising prices, the company must avoid being perceived as price gouger
over-demand
What are some ways companies will adjust their basic price to reward customers for certain responses?
paying bills early, volume purchases, off-season buying
promotional allowances
payments or price reductions that reward dealers for participating in advertising and sales-support programs
What are the public policy issues in pricing?
potentially damaging pricing practices within a given level of the channel (price-fixing and predatory pricing), across levels of the channel (retail price maintenance, discriminatory pricing, and deceptive pricing)
discounts and allowances
price adjustments - one form of discount is a cash discount, a price reduction to buyers who pay their bills promptly - a quantity discount is a price reduction to buyers who buy large volumes - a seller offers a functional discount, also called a trade discount, to trade-channel members who perform certain functions, such as selling, storing, and record keeping. - a seasonal discount is a price reduction to buyers who buy merchandise or services out of season.
a successful _________ ___________ can greatly improve profits
price increase
Trade-in allowances
price reductions given for turning in an old item when buying a new one
Rather than cutting prices, many companies have instead developed "________ __________," adding both more affordable lines and premium lines.
price tiers
understanding a brand's _________-___________ curve is crucial to good pricing decisions.
price-demand
In the aftermath of the recent Great Recession, many consumers have rethought the _________-_________ ______________. As a result, many marketers have increased their emphasis on value-for-the-money pricing strategies.
price-value equation
reservation prices
prices that buyers carry in their minds and refer to when looking at a given product. Might be formed by noting current prices, remembering past prices, or assessing the buying situation. Sellers can influence or use these consumers' _________ ___________ when setting price.
Price decisions must be coordinated with _____________, ______________, and _____________ ___________ to form a consistent and effective integrated marketing mix program.
product design; distribution; promotion decisions
Although costs are an important consideration in setting prices, cost-based pricing is often __________ ___________. The company designs what it considers to be a good product, adds up the costs of making the product, and sets a price that covers costs plus a target profit.
product driven.
What is the buyer's perspective of a price increase?
product is more exclusive or better made. company is being greedy
What do laws against predatory pricing state?
protects small sellers from larger ones that might sell items below cost temporarily or in a specific locale to drive them out of business
What markets do the seller's pricing freedom varies with?
pure competition, monopolistic competition, oligopolistic competition, pure monopoly
A firm considering a price change must worry about the ___________ of its competitors as well as those of its customers.
reactions
Dynamic pricing
refers to adjusting prices continually to meet the characteristics and needs of individual customers and situations - it is a demand driven pricing system.
psychological pricing
refers to pricing that considers the psychology of prices and not simply the economics
Market-skimming pricing
refers to setting a high price for a new product to skim maximum revenues, layer by layer, from the segments willing to pay the high price.
market-penetration pricing
refers to setting a low price for a new product in order to attract a large number of buyers and a large market share.
price elasticity
refers to the measure of the sensitivity of demand to changes in price. Example, it tells you how much sales you are going to gain/lose if you lower/raise your price by 5%.
Price is the only element in the marketing mix that produces ___________; all other elements represent _________.
revenue; cost
Value-based pricing _________ this process. The company first assesses customer needs and value perceptions. It then sets its target price based on customer perceptions of value.
reverses
Consumers may view a price cut in________ _________
several ways
Price
the amount of money you pay for a product or a service. It is the sum of all the values that customers give up to gain the benefits of having or using a product or service. It is one of the most important elements that determines a firm's market share and profitability.
segmented pricing
the company sells a product or service at two or more prices, even though the difference in prices is not based on differences in costs
Pure competition
the market consists of many buyers and sellers trading in a uniform commodity. No single buyer or seller has much effect on the going market price. Sellers in these markets do not spend much time on marketing strategy.
Monopolistic competition
the market consists of many buyers and sellers trading over a range of prices rather than a single market price. A range of prices occurs because sellers can differentiate their offers to buyers. Sellers try to develop differentiated offers for different customers segments and, in addition to price, freely use branding, advertising, and personal selling to set their offers apart.
Pure monopoly
the market is dominated by one seller. the seller may be a government monopoly, a private regulated monopoly, or a private unregulated monopoly. pricing is handled differently in each case.
uniform-delivered pricing
the opposite of FOB pricing. Here, the company charges the same price plus freight to all customers, regardless of their location. The freight charge is set at the average freight cost.
freight-absorption pricing
the seller absorbs all or part of the actual freight charges to get the desired business. Used for market penetration and to hold on to increasingly competitive markets.
basing-point pricing
the seller selects a given city as a "basing point" and charges all customers the freight cost from that city to the customer location, regardless of the city from which the goods are actually shipped
Management wants to charge a price that will at least cover the ___________ _____________ _____________ at a given level of production.
total production costs
customer value-based pricing
uses buyers' perceptions of value as the key to pricing. Price is considered along with all other marketing mix variables before the marketing program is set. That is, the company first assess *customer needs and value perceptions.* It then sets its target price based on customer perceptions of value
Other companies are holding prices but redefining the "_________" in their value propositions.
value
variable costs
vary directly with the level of production. Although these costs tend to be same for each unit produced, they are called ________ because the total varies with the number of units produced.
