The Marketing Mix

1
The Marketing Mix

• Price Strategies

2
The Importance of Pricing

• Pricing is one of the most vital decisions made
  by management
• Price too high and you lose the sale
• Price too low and you cant make money
• Two fundamental ways to grow revenue
• raise your price
• increase the quantity you sell
• Price is the easiest of all marketing variables
  to influence but among the most complex decisions
  to make
• price changes may be implemented immediately

3
Conceptual Orientation to Pricing
Nagle 1999
4
Nine Price-Quality Strategies
5
Setting the Price
6
Setting the Price

• Pricing Procedure
• Select pricing objective
• Determine demand
• Estimate costs
• Analyze competition
• Select pricing method
• Select final price

• Survival
• Maximize current profits
• Maximize market share
• Penetration strategy
• Market skimming
• Skimming strategy
• Product quality leaders
• Partial cost recovery

7
Setting the Price

• Pricing Procedure
• Select pricing objective
• Determine demand
• Estimate costs
• Analyze competition
• Select pricing method
• Select final price

• Understand factors that affect price sensitivity
• Estimate demand curves
• Understand price elasticity of demand
• Elasticity
• Inelasticty

8
Price Sensitivity

• Situations That Increase Price Sensitivity
• Availability of product substitutes
• Higher total expenditure
• Noticeable differences
• Easy price comparison
• Situations That Decrease Price Sensitivity
• Real or perceived necessities
• Lack of product substitutes
• Complementary products
• Product differentiation
• Perceived product benefits
• Situational influences

9
Price Elasticity of Demand
10
Setting the Price

• Pricing Procedure
• Select pricing objective
• Determine demand
• Estimate costs
• Analyze competition
• Select pricing method
• Select final price

• Types of costs and levels of production must be
  considered
• Accumulated production leads to cost reduction
  via the experience curve
• Differentiated marketing offers create different
  cost levels

11
Setting the Price

• Pricing Procedure
• Select pricing objective
• Determine demand
• Estimate costs
• Analyze competition
• Select pricing method
• Select final price

• Select method
• Markup pricing
• Target-return pricing
• Perceived-value pricing
• Value pricing
• EDLP, Hi-Lo
• Going-rate pricing
• Auction-type pricing
• Group pricing

12
Setting the Price

• Pricing Procedure
• Select pricing objective
• Determine demand
• Estimate costs
• Analyze competition
• Select pricing method
• Select final price

• Requires consideration of additional factors
• Psychological pricing
• Gain-and-risk-sharing pricing
• Influence of other marketing mix variables
• Company pricing policies
• Impact of price on other parties

13
Adapting the Price
Price Discounts and Allowances
Cash Discounts
Functional Discounts
Quantity Discounts
Seasonal Discounts
Trade-in Allowances
Promotional Allowances
14
Adapting the Price
Loss-Leader Pricing
Special Event Pricing
Promotional Pricing Tactics
Low Interest Financing
CashRebates
PsychologicalDiscounting
Warranties and Service Contracts
Longer Payment Terms
15
Adapting the Price
Discriminatory Pricing Tactics
Time Pricing
Image Pricing
Channel Pricing
Location Pricing
Product-Form Pricing
Customer Segment Pricing
16
Adapting the Price

• Price discrimination works when
• Market segments show different intensities of
  demand
• Consumers in lower-price segments can not resell
  to higher-price segments
• Competitors can not undersell the firm in
  higher-price segments
• Cost of segmenting and policing the market does
  not exceed extra revenue

17
Adapting the Price
Product-Mix Pricing Tactics
Two-Part Pricing
By-Product Pricing
Product-Line Pricing
Product-Bundle Pricing
Captive-Product Pricing
Optional-Feature Pricing
18
Legal and Ethical Issues in Pricing

• Price Discrimination
• Price Fixing
• Predatory Pricing
• Deceptive Pricing