Marketing Management Pricing

1. Pricing

2. What Is a Price?
Price is the only element in the
marketing mix that produces
revenue; all other elements
represent costs

3. Customer Perceptions of Value
 Understanding how much value consumers
place on the benefits they receive from the
product and setting a price that captures that
value

4. Stages for Establishing Prices

5. 1 Selecting the pricing objective.
Pricing objectives
 Describe what a firm wants to achieve through pricing
 Form the basis of decisions about other stages in establishing
prices
 Must be explicitly stated and include a time frame.

6. 1.Pricing Objectives and Typical Actions Taken to Achieve Pricing
Objectives

7. Product Quality
Product Quality
This ad for Kellogg’s Corn
Flakes focuses on high
product quality.
Product quality pricing
objective: Set prices to
recover research and
development expenditures and
establish a high-quality image

8. 2. Determining Demand.
Each price will generate different demand and will have different
impact on company’s marketing objectives. The relationship
between price and demand can be expressed through demand
curve. The price and demand is inversely related. The higher the
price, the lower is the demand sometimes high price denotes
better product. The demand can be determined on following
bases-
I.Price sensitivity
II.Estimating demand curves.
I.Price elasticity of demand.

9. The firm will charge a price that covers its cost
of producing, ,and selling the product including
a return for its risk. Even when companies price
products to cover their full costs, it will not
always result in net profitability.
Estimating costs

10. Analyzing competitors costs, prices and offers:
In competitive situations, marketers must keep
prices the same as, or lower than, competitors’
prices.
In some instances, an organization’s prices are
designed to be slightly above competitors’ prices to
give its products an exclusive image, or below
competitors to generate a low-cost image.
 Wal-Mart has “Everyday low prices”
 Starbucks has premium-priced beverages

11. Selecting the price method
 Cost-based pricing: adding a some amount or
 percentage to the cost of the product
 Cost-plus pricing: adding a specific amount or
 percentage to the seller’s cost
 Markup pricing: adding to the cost of the product a
predetermined percentage of that cost
Retailer buys product at 45 Rs., adds 15 Rs Price = 60 Rs.
Markup as a percentage of cost = markup
cost
= 15
45
= 33.3 percent
Markup as a percentage of selling price = markup
selling price
= 15
60
= 25 percent

12. Selection of a Basis: Demand and
Competition-Based Pricing
 Demand-based pricing
 Based on the level of demand for the
product
 Competition-based pricing
 Influenced primarily by competitor’s
prices
Demand-Based Pricing
Rental car rates are frequently
based on demand. High demand
results in higher prices. Prices are
lower when demand is low.

13. Common Pricing Strategies

14. Differential Pricing
 Charging different prices to different
buyers for the same quality and quantity
of product
Negotiated pricing: Establishing a final price
through bargaining
Secondary-market pricing: Setting one price
for the primary target market and a different price
for another market
Periodic discounting: Temporary reduction of
prices on a patterned or systematic basis
Random discounting: Temporary reduction of
prices on an unsystematic basis

15. New-Product Pricing
 Price skimming
Charging the highest possible price that buyers
who most desire the product will pay
 Penetration pricing
Setting prices below those of competing brands
to penetrate a market and gain a significant
market share quickly

16. Product-Line Pricing
Establishing and adjusting prices of multiple
products within a product line
 Captive pricing: Pricing the basic product in a product
line low while pricing related items at a higher level
 Premium pricing: Pricing the highest-quality or most
versatile products higher than other models in the
product line
 Bait pricing: Pricing an item in the product line low with
the intention of selling a higher-priced item in the line
 Price lining: Setting a limited number of prices for
selected groups or lines of merchandise

17. Product-Line Pricing
Captive Pricing
The Gillette razor is inexpensive.
To use this razor on a regular
basis, customers must by the
replacement blade cartridges. The
annual cost of the replacement
blade cartridges is significant.
Gillette is using captive pricing.

18. Psychological Pricing
 Pricing that attempts to influence a customer’s perception of
price to make a product’s price more attractive
 Reference pricing: Pricing a product at a moderate level and
displaying it next to a more expensive model or brand
 Multiple-unit pricing: Packaging together two or more identical
products and selling them for a single price
 Odd-even pricing: Ending the price with certain numbers to
influence buyers’ perceptions of the price or product
 Customary pricing: Pricing on the basis of tradition

19. Psychological Pricing
Bundle pricing
 Packaging together two or
more complementary
products and selling them
for a single price
Bundle Pricing
Price bundling is commonly used
in the communications industry,
including phone, TV cable, and
internet services.

20. Psychological Pricing
 Everyday low prices
(EDLP)
 Setting a low price for
products on a consistent
basis
Everyday Low Price
Wal-Mart is well-known
for using the Everyday
Low Prices strategy.

21. Psychological Pricing
 Prestige pricing
 Setting prices at an artificially
high level to convey prestige or a
quality image
Prestige Pricing
Organizations employ prestige
pricing to help support and
communicate a premium,
high-quality product

22. Promotional Pricing
Price leaders
 Product priced below the usual markup, near cost or
below cost
Special-event pricing
 Advertised sales or price cutting linked to a holiday,
season or event
Comparison discounting
 Setting a price at a specific level and comparing it with
a higher price

23. Determination of a Specific Price
• A flexible and convenient way to adjust
the marketing mix
• To set the final price, it is important for
marketers to:
1. Establish pricing objectives
2. Have considerable knowledge about target-market
customers
3. Determine demand, price elasticity, costs, and competitive
factors

24. After Reviewing This Chapter
You Should:
1. Understand the six major stages of the process
used to establish prices.
2. Know the issues that are related to developing
pricing objectives.
3. Understand the importance of identifying the
target market's evaluation of the price.
4. Be able to describe how marketers analyze.
competitive prices.
5. Be familiar with the bases used for setting prices.
6. Be able to explain the different types of pricing
strategies.
7. Understand how a final specific price is
determined.