Marketing Chapter 13 Pricing Goods and Services Gilbert

Marketing Chapter 13 Pricing Goods and Services Gilbert A. Churchill, Jr. J. Paul Peter

Slide 13 -1 Figure 13. 2 The Pricing Process - I Set Pricing Objectives Analyze Profit Potential Evaluate Customer Response and other Pricing Constraints Set Initial Price Make Price Adjustments as Needed

Slide 13 -2 Pricing Objectives Pricing Objective Examples Segmentation and Positioning Objectives Support Efforts to Position Product for Market Target Sales and Profit Objectives Achieve desired levels of sales and earn targeted level of profits Competitive Objective Compete in terms of relative price or market share Survival Objective Enable organization to survive Social Responsibility Objective Meet a standard of social responsibility

Slide 13 -3 Table 13. 1 Segmentation and Positioning Objectives Price Level Value Position Examples High relative to product class High value because of quality and prestige. Nike athletic shoes (such as Air Jordans); dental work by a widely respected specialist. Around average for product class High value because of good quality at a reasonable price. Keds tennis shoes; dental work by the neighborhood family dentist. Low relative to product class High value because of Generic or private-label acceptable quality at a low shoes at a drugstore or price. discount store; dental work by students being trained at a university clinic.

Slide 13 -4 Figure 13. 2 The Pricing Process - II, IV Set Pricing Objectives Analyze Profit Potential Evaluate Customer Response and other Pricing Constraints Set Initial Price Make Price Adjustments as Needed

Slide 13 -5 Set Initial Price - Strategies for Pricing New Products Price Skimming $ Penetration Pricing Time

Slide 13 -6 Set Initial Price - Strategies for Pricing Existing Products Product Characteristics Examples Perishability This includes physical perishability (bananas) as well as demand running out over time (Christmas cards) Distinctiveness The product must be distinct enough from the competition in terms of quality, branding, design, and features Life Cycle Stage As the product goes from the introductory, growth, maturity and decline, the price must continuously decrease

Slide 13 -7 Pricing Product Lines Uniform Pricing Price Lining ks all boo $40. 00 $1. 00 s all CD’ $15. 95 $1. 00 ettes s s a C l l a $9. 95 $1. 00

Slide 13 -8 Figure 13. 2 The Pricing Process - V Set Pricing Objectives Analyze Profit Potential Evaluate Customer Response and other Pricing Constraints Set Initial Price Make Price Adjustments as Needed

Slide 13 -9 a Table 13. 2 Adjusting Prices - Discounting Discount Quantity discount Definition Reduction in the price per unit for purchasing a larger quantity Seasonal discount Price reduction offered during times of slow demand Example A catalog for Gardener’s Supply Company offers 1 cedar planter for $32. 95 and 2 or more for $30. 00 each. A ski resort offers lower prices during the summer. Trade discount Percentage reduction from A publisher sells books to list price offered to a chain of stores for a resellers fraction of the retail price. Cash discount Incentive for buyers to pay An organization receives quickly or a lower price for an invoice that reads, payment of cash “ 2/10 net 30. ”

Slide 13 -9 b Table 13. 2 Adjusting Prices - Allowances Discount Definition Example Trade-in allowance Discount for providing a product along with monetary payment A car dealer offers $1, 000 off the list price in exchange for a buyer trading in her used car. Promotional allowance Price reduction in exchange for the reseller performing certain promotional activities A frozen-pizza maker gives a price break to a supermarket that promises to feature the product in its advertising.

Slide 13 -9 c Table 13. 2 Adjusting Prices - Others Discount Definition Example Promotional discount Short-term discount to stimulate sales or convince buyers to try a product A Jiffy Lube franchise passes out flyers offering $5 off on an oil change; the discount is good for 30 days. Loss leader pricing Setting prices near or below cost in order to attract customers to a store A supermarket features bananas at 20 cents a pound and Pampers diapers at 50 percent off; the price is below cost, but the store expects buyers to purchase additional items selling at a profit.

Slide 13 -10 Every-Day Low Price EDLP Strategy Sell 100 $10. 99 Promotional Discount Strategy Sell 10 $15. 99 Sell 20 $11. 99 Sell 70 $9. 99

Slide 13 -11 Table 13. 3 Psychological Pricing TYPE Technique DESCRIPTION Pricing Definition EXAMPLE Example Product Prestige Pricing Setting a high price to image of high Tableconvey 13. 3 anmissing quality or exclusivity The Porsche 911 turbo coupe has a base price of $105, 000. Odd-even pricing Setting prices a few dollars or cents below a round number Office Depot advertises a GE cellular phone for $39. 99. Bundle pricing Offering several products as a package at a single price A hotel quotes a rate for an over-night stay that includes breakfast the next morning.

Slide 13 -12 Geographic Pricing a good or service according to where it is delivered. FOB Origin Pricing Seller’s price is for the goods at point of shipment, where title passes from buyer to seller. Uniform Delivered Pricing Seller’s price includes shipping; title passes where buyer receives the goods. Single-zone Pricing in which all buyers pay the same price, including delivery. Multiple-zone pricing Pricing in which buyers in different zones pay different delivery prices. FOB with freight allowed Pricing in which the seller allows the buyer to deduct shipping costs from the quoted price of the product. Basing point pricing Pricing in which the seller charges the quoted price plus the cost of delivering from a basing point where the product is made.

Slide 13 -13 Evaluating Pricing TYPE Response DESCRIPTION EXAMPLE Example Product Competitor Response Consumer Response to Low Price war - repeated price reductions Prices Table 13. 3 missing Reposition as being higher quality Response to High Prices Increase their own prices Light Demand A signal that the price may be too high May have to modify other elements of the marketing mix Heavy Demand A signal that the price may be too low May have to modify other elements of the marketing mix