INTRODUCTORY MARKETING Pricing M Louise Ripley MBA Ph

INTRODUCTORY MARKETING Pricing M. Louise Ripley, MBA, Ph. D

PRICING LECTURE Questions We Will Answer u How is pricing part of Marketing Strategy? u How is pricing affected by Cost, Demand, Competition? u How do you set a price?

KEY FACTORS IN PRICING u Objectives u Strategies u Policies and Constraints u Tactics

PRICING OBJECTIVES u Cost u Demand u Competition

PRICING OBJECTIVES COST ORIENTED u Emphasis - Cost/Profit Target Return l Satisfactory Return l Maximize Current Profit l Maximize Long Term Profit l

COST CALCULATION: How real is this price? u. Estimate demand function Q = 1000 - 4 P u. Estimate cost function C = 6000 + 50 Q u. Calculate total revenues R = P(1000 -4 P) u. Calculate Profits l Z = (1000 P - 4 P 2) - (6000 + 50 Q) l Z = -56, 000 + 12, 000 P - 4 P 2 = $150

PRICING OBJECTIVES DEMAND ORIENTED u Emphasis - Demand/Sales u Growth in Market Share u Growth in Dollar or Unit Sales

PRICING OBJECTIVES DEMAND ORIENTED u How to Grow in Sales

Skimming the Cream u Conditions: m Demand Not Sensitive to Price m Different Price Segments m Consumers Unaware of Cost m Little Competition

Skimming the Cream - High Price u MAYOR’S FOUNTAIN PEN $500? Their Advertising Claim: “For the average lifestyle, the average writing instrument is perfectly adequate. But while most pens are designed for signing postcards, ours are designed for signing peace treaties. ”

Skimming the Cream continuing the strategy. . . u High Price First u Lower Price Later l Dupont: Cellophane, Nylon l Polaroid: Camera

PRICING OBJECTIVES DEMAND ORIENTED u How to Grow in Sales l Skimming the Cream l Penetration Pricing

PRICING OBJECTIVES DEMAND ORIENTED u Penetration Pricing - Low Price u Conditions: m Demand is Price Sensitive m No Different Price Segments m Product Not A Status Item m Competition Likely

Penetration Pricing u Regular Penetration Pricing The Colt Car Sells at regular low price

Penetration Pricing Special Condition Nabisco’s New “Giggles” Cookies 20 cents off coupon for a short time only

PRICING OBJECTIVES COMPETITION ORIENTED u Emphasis - Competition/Status Quo Meeting the Competition l Non-Price Competition l

BREAK EVEN ANALYSIS BEP = $30, 000/($1. 20 -$0. 80) = 75, 000 units $ Sells at $1. 20 VC = $0. 80 FC = $30, 000 Units Break Even Point = 75, 000 units

PRICING STRATEGIES u Mixing Price with the Other Variables u. Literally Thousands of Combinations

Marketing Mix Combinations Just One: Price and Quality P High Medium Low Premium Penetration Big Bargain Medium Overpriced Average Bargain Low Hit & Run Shoddy Cheap QHigh

PRICING STRATEGIES u Cost u Demand u Competition

PRICING STRATEGIES COST ORIENTED u Target Profit Pricing u. Mark-Up Pricing

PRICING STRATEGIES COST ORIENTED u Problems l Difficulties Determining Cost

Mark- Up Pricing Problems: What is Mark-up? 13%? < Frozen Foods > 53%?

PRICING STRATEGIES COST ORIENTED u Problems l Difficulties Determining Cost l Legal Problems

PRICE FIXING

PRICING STRATEGIES DEMAND ORIENTED u Perceived Value

PRICING STRATEGIES DEMAND ORIENTED u Perceived Value u Demand Differential

PRICING STRATEGIES DEMAND ORIENTED u Perceived Value u Demand Differential l Customer Form

PRICING STRATEGIES DEMAND ORIENTED u Perceived Value u Demand Differential l Customer Form l Product Form

LEGAL PRODUCT FORM PRICE DISCRIMINATION u TV without stereo sells for $250 u TV with $5 worth of stereo parts sells for $350

PRICING STRATEGIES DEMAND ORIENTED u Perceived Value u Demand Differential l Customer Form l Product Form l Place

PRICING STRATEGIES DEMAND ORIENTED u Perceived Value u Demand Differential l Customer Form l Product Form l Place l Time

PRICING STRATEGIES COMPETITION ORIENTED u Going Rate u. Sealed Bid

PRICING OBJECTIVES and STRATEGIES u Cost u Demand u Competition

PRICING POLICIES AND CONSTRAINTS u Management u Distributors u Competitors u Suppliers u Company Executives u Stockholders u Government regulations

PRICING TACTICS u Psychological Pricing m Odd - Even: $69. 95 m Price Lining

PRICE LINING MEN’S SUITS u as seen by the wearer of a $500 suit: cheap GOOD overpriced $300 $500 $700 u as seen after a 10% price increase: cheap $330 GOOD $550 overpriced $770

PRICING TACTICS u Psychological Pricing l Odd - Even Pricing l Price Lining l Prestige Pricing

PRESTIGE PRICING u BAYER

PRICING TACTICS u Psychological Pricing l Odd - Even Pricing l Price Lining l Prestige Pricing l Promotional Pricing

ILLEGAL PROMOTIONAL PRICING Original Price $250 Illegal Pricing: Was $350 Now Only $300!!

PRICING TACTICS u Discount Pricing l l l Quantity Cash Trade/Functional Seasonal Consumer - everything else?

KEY FACTORS IN PRICING u Objectives l Cost, Demand, Competition u Strategies l Cost, Demand, Competition u Policies and Constraints u Tactics

PRICING LECTURE SUMMARY u How is pricing part of Marketing Strategy? u How is pricing affected by Cost, Demand, Competition? u How do you set a price? u Real World Story - Earmuffs tape