Marketing Chapter 9

When to initiate price increases

- cost inflation - over-demand *must avoid appearing like a price gouger (stay fair)

When to initiate price cuts?

- excess capacity - falling demand - drive to dominate the market through lower costs

Scanner fraud

- failure to enter current or sale prices into the system

Price elasticity

- how responsive demand will be to a change in price - demand is elastic if it changes greatly when price changes

2. market penetrating pricing

- initially set low prices - attract a lot of customers and win market share - success in the market allows them to cut prices even lower - requires a market that is highly sensitive to prices - costs must decrease over time

4 Different Markets that Pricing Occurs

1. pure competition 2. monopolistic competition 3. oligopolistic competition 4. pure monopoly

Geographical pricing

*uniformed-delivered pricing*: charge the same price plus freight to all customers *zone pricing*: set up zones and charge based on the zone they are in *Basing-point*; choose one city and charge all customers the freight cost from that city *freight-absorption pricing*: absorb all or part of the actual freight to get the desired business

Types of costs

- Fixed costs - Variable costs - Total costs= Fixed + Variable

Laws prohibiting retail price maintenance

- a manufacturer cannot require dealers to charge a specified retail price for its product

*Cost-Plus Pricing (markup pricing)* (type of cost based pricing)

- adding a standard markup to a product - i.e. a 50% markup (paying 20 for a product and selling it for 30) - generally doesn't make sense because it ignores consumer demand and competitors prices

Dynamic pricing

- adjusting prices continually to meet characteristics and needs of individual customers and situations - very prevalent online

What sets the ceiling and floor for price

- ceiling is set by customer expectations - floor is set by the cost to produce the product

5. Product bundle pricing

- combining several prices and offering the bundle at a reduced price

Segmented pricing

- company sells a product or service at two or more prices not associated to differences in costs - *customer-segment pricing*: different customers paying different prices - *product form pricing*: different versions of priced differently not according to differences in costs (economy vs. business class) - *location-based pricing*: different prices for different locations (out of state tuition) - *time based pricing*: price varies by season or time of day (matinee prices)

*Value added pricing* (type of value-based pricing)

- instead of cutting prices, they attach value added services to differentiate their offers and support their higher prices - (i.e. movie theaters are adding more rather than cutting the price of tickets)

Competition-based pricing

- involves setting prices based on competitor's strategies, costs, marketing offerings, prices - must consider how offering compares with competitor's - goal is not to match or beat competitor's prices, but set prices according to relative value

Cost based pricing

- involves setting prices based on the costs of producing, distributing, and selling the product - some companies invest in more expensive and higher quality things so they can set higher prices

3. Captive- Product pricing

- make products that must purchased and used with the main product - i.e razor blade cartridge - often price the main product low and make mark up the additional products - services with captive pricing is broken into a 2-part pricing: fixed fee and variable usage rate (six flags)

1. Product line pricing

- management determines the price steps to set between the various products within a line - should take into account cost differences and different customer perceptions

2. Monopolistic competition

- many buyers and sellers trading over a range of prices - sellers differentiate offers to buyers - brands aren't set a part based on price, but based on brand differentiation

3. Oligopolistic competition

- market consists of a only a few large sellers (Comcast, Fios, Dish) - each seller is responsive to competitors' pricing -

1. Pure competition

- market consists of many buyers and sellers trading in uniform commodity - no single buyer or seller has much effect on going market price - not a lot of time is spent on marketing strategy

4. Pure monopoly

- market is dominated by one seller - can be a government monopoly (US Postal Service) or a private regulated company (a power company) or a private unregulated monopoly (De Beers and diamonds)

*Good-value pricing* (type of value-based pricing)

- offering the right combination of quality and good service at a fair price - great recession pricing - many cases it means bringing on lower priced items - sometimes its redesigning existing brands to provide more quality for a given price or same quality for less - even premium brands can launch this (they are relative to current prices)

2. Optional-Product pricing

- offering to sell optional accessory products along with main product - i.e. refrigerators may come with an ice maker - important to understand how to price these options

Target costing

- process that starts with an ideal selling price based on customer value considerations and then targets costs to ensure that the price is met

4 ways to assess why a company has reduced price

- reduce price to match competitor's actions - raise perceived value - improve quality and increase price - launch a separate lower-price brand

Discount and allowance pricing

- reward customers for certain responses (paying bills early) - *cash discount*: for buyers who pay promptly - *quantity discount*: for buyers who buy in large volume - *functional discount*: for trade-channel members who perform certain functions like selling, storing, and record keeping - *seasonal discount*: for services out of season *trade-in allowances* and *promotional allowances*

Deceptive pricing

- seller states prices or price savings that mislead consumers or are not actually available (bogus comparison prices)

Psychological pricing

- selling considers psychology of prices; judge quality by examining it or calling on past experiences - if you can't judge quality because of lack of information, price becomes an important quality signal (better lawyer is more expensive) - *reference prices* buyers carry these prices in their minds

4. By-Product Pricing

- selling the by-products produced by using a product (the leftover brine from making cheese in Wisconsin) -

1. market skimming pricing

- set high initial prices to skim revenues layer by layer - Apple does this - must be enough people who will buy it for the high price, and lowering the price can't cancel out the revenues initially made

*Break-even pricing* (type of cost based pricing)

- the firm tries to determine the price at which it will break even (target return pricing method- the price at which it will hit a target return) - relies on a break even chart to show you total cost and revenue expected at different levels - fails to consider customer value and the relationship between price and demand

Price

- the sum of all the the values that customers give up to obtain the benefits of a product or service - only element in marketing mix producing revenue

Customer based value pricing

- uses buyers' perceptions of value as key for pricing - this means pricing is considered along the way before the marketing program is set

Demand curve

-shows the relationship between the price charged and the resulting demand level - demand and price usually have an inverse relationship (higher demand=lower price)

2 Types of new product pricing stategies

1. Market skimming pricing 2. Market penetration pricing

Value based pricing process

1. assess customer needs and value perceptions 2. set target price to match customer perceived value 3. Determine costs that can be incurred 4. Design product do deliver product of value at target price

7 Price adjustment strategies to account for customer differences

1. discount and allowance pricing 2. segmented pricing 3. psychological pricing 4. promotional pricing 5. geographical pricing 6. dynamic pricing 7. international pricing

5 Product Mix Pricing Strategies

1. product line pricing 2. optional-product pricing 3. captive-product pricing 4. By-product pricing 5. Product bundle pricing

Promotional pricing

companies temporarily price their products below list price to create excitement. can be: - *discounts* from normal prices - *special-event pricing* in certain seasons (December) - *Limited-time offers*: flash sales - *cash rebates* - *low-interest financing, longer warranties, and free maintenance*

International pricing

depends on - economic conditions - competitive situations - laws and regulations - nature of wholesaling - consumer perceptions *price escalation* overseas results from differences in selling strategies or the higher costs of selling

Robinson-Patman act

seeks to prevent unfair price discrimination by ensuring sellers offer the same price terms to customers at a given level of trade (i.e. every retailer is entitled to the same price terms from a given manufacturer)

Predatory pricing regulations

selling below cost with the intention of punishing a competitor or gaining higher long term profits

Price fixing regulations

states that sellers must set prices without talking to competito