This document discusses managing pricing decisions. It outlines objectives like establishing pricing objectives and related strategies, selecting pricing tactics, setting the exact price, determining channel discounts and allowances, executing price changes, and understanding legal considerations in pricing. The key elements are establishing pricing objectives that are consistent with other marketing goals and the firm's overall objectives, selecting appropriate pricing tactics, determining discounts and allowances for channels, and executing price changes effectively while following legal guidelines.

1. 14 Managing Pricing Decisions Copyright © 2010 by The McGraw-Hill Companies, Inc. All rights reserved McGraw-Hill/Irwin

2. LEARNING OBJECTIVES Understand the integral role of price as a core component of value Explore different pricing objectives and related strategies Identify pricing tactics Describe approaches to setting the exact price Determine discounts and allowances to offer to channel members Understand how to execute price changes Examine legal considerations in pricing 14-2

3. PRICE IS A CORE COMPONENT OF VALUE Value is a ratio of the bundle of benefits a customer receives from an offering compared to the costs incurred by the customer in acquiring that bundle of benefits. Price – or more specifically the customer’s perception of the offering’s pricing – is a key determinant of perceived value. 14-3

4. Elements of Managing Pricing Decisions EXHIBIT 14.1 Establish Pricing Objectives and Related Strategies Select Pricing Tactics Set the Exact Price Determine Channel Discounts and Allowances Execute Price Changes Understand Legal Considerations in Pricing 14-4

5. ESTABLISH PRICING OBJECTIVES AND RELATED STRATEGIES Pricing objectives are the desired or expected result associated with a pricing strategy. Pricing objectives must be consistent with other marketing-related objectives as well as with the firm’s overall objectives for doing business. 14-5

6. ESTABLISH PRICING OBJECTIVES AND RELATED STRATEGIES Penetration Pricing Price Skimming 14-6

7. ESTABLISH PRICING OBJECTIVES AND RELATED STRATEGIES Profit Maximization and Target ROI Price Elasticity Of Demand Competitor-Based Pricing Price war Stability pricing 14-7

8. ESTABLISH PRICING OBJECTIVES AND RELATED STRATEGIES Value Pricing Value pricing overtly attempts to take into account the role of price as it reflects the bundle of benefits sought by the customer. 14-8

9. Generic Price-Quality Positioning Map EXHIBIT 14.3 High Price Feasible Positions Feasible Positions Low Quality High Quality Feasible Positions Low Price 14-9

10. summary of tactical pricing approaches EXHIBIT 14.4 Product Line Pricing Captive Pricing Auction Pricing Price Bundling EDLP and High/Low Pricing Pricing Tactics One-Price and Variable Pricing Reference Pricing Odd/Even Pricing Prestige Pricing 14-10

11. SELECT PRICING TACTICS Product Line Pricing Price points Captive Pricing Complementary pricing Price Bundling Reference Pricing Prestige Pricing Odd/Even Pricing 14-11

12. SELECT PRICING TACTICS One-Price Strategy and Variable Pricing Everyday Low Pricing (EDLP) and High/Low Pricing Auction Pricing 14-12

13. SET THE EXACT PRICE 14-13

14. DETERMINE CHANNEL DISCOUNTS AND ALLOWANCES Discounts are direct, immediate reductions in price provided to purchasers. Allowances remit monies to purchasers after the fact. 14-14

15. DETERMINE CHANNEL DISCOUNTS AND ALLOWANCES 14-15

16. DETERMINE CHANNEL DISCOUNTS AND ALLOWANCES Geographic Aspects of Pricing 14-16

17. EXECUTE PRICE CHANGES A change in an offering’s price – either up or down – can dramatically impact the effectiveness of the overall marketing mix variables in reflecting your offering’s positioning in the eyes of customers. Just Noticeable Difference (JND) 14-17

18. UNDERSTAND LEGAL CONSIDERATIONS IN PRICING 14-18

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