Phillip Kevin Lane Kotler Keller Marketing Management 14

Phillip Kevin Lane Kotler • Keller Marketing Management • 14 e

a h C e t p 4 1 r Developing Pricing Strategies and Programs

Discussion Questions 1. How do consumers process and evaluate prices? 2. How should a company set prices initially for products or services? 3. How should a company adapt prices to meet varying circumstances and opportunities? 4. When should a company initiate a price change? 5. How should a company respond to a competitor’s price change? Copyright © 2012 Pearson Education, Inc. Publishing as Prentice Hall Slide 3 of 33

Marketing Mix Cost Product Price Cost Place Promotion Copyright © 2012 Pearson Education, Inc. Publishing as Prentice Hall Revenue Producer Cost Slide 4 of 33

Pricing Forms Price Components Functions $31. 50 $33. 50 Bargaining Copyright © 2012 Pearson Education, Inc. Publishing as Prentice Hall Slide 5 of 33

Changing Price Environment Buyers I’ll pay $235. 00 Instant Price Comparisons Get Products Free Name Your Own Price Copyright © 2012 Pearson Education, Inc. Publishing as Prentice Hall Slide 6 of 33

Changing Price Environment Sellers $29. 99 $19. 99 $24. 99 Selective Pricing Negotiate Prices Copyright © 2012 Pearson Education, Inc. Publishing as Prentice Hall Monitor Customers Slide 7 of 33

How Companies Price Product-line Managers (w/guidance) Small Business Owner Pricing Department Copyright © 2012 Pearson Education, Inc. Publishing as Prentice Hall Slide 8 of 33

Consumer Psychology and Pricing Price-Quality Inferences Reference Prices 99 $1. Copyright © 2012 Pearson Education, Inc. Publishing as Prentice Hall Price Endings Slide 9 of 33

A Black T-Shirt Armani - $275 Gap - $14. 90 H&M - $7. 90 Copyright © 2012 Pearson Education, Inc. Publishing as Prentice Hall Slide 10 of 33

Setting the Price 6 5 Select Final Price Method 4 Competitor Analysis 3 Estimate Costs 2 Determine Demand 1 Pricing Objective Copyright © 2012 Pearson Education, Inc. Publishing as Prentice Hall Slide 11 of 33

Selecting the Pricing Objective Survival Maximum Current Profit Maximum Market Share Maximum Market Skimming Product-Quality Leadership Other Objectives Copyright © 2012 Pearson Education, Inc. Publishing as Prentice Hall Slide 12 of 33

Determining Demand Price sensitivity Estimating demand curves Price Elasticity of Demand Copyright © 2012 Pearson Education, Inc. Publishing as Prentice Hall Slide 13 of 33

g i F e r u 1. 14 Inelastic and Elastic Demand Copyright © 2012 Pearson Education, Inc. Publishing as Prentice Hall Slide 14 of 33

Estimating Costs Demand Price Ceiling Price Profit Price Floor Costs Copyright © 2012 Pearson Education, Inc. Publishing as Prentice Hall Slide 15 of 33

Estimating Costs Types of costs Fixed Costs (overhead) Variable Costs Copyright © 2012 Pearson Education, Inc. Publishing as Prentice Hall Total Costs Slide 16 of 33

g i F e r u 2. 14 Costs at Varying Levels of Production Copyright © 2012 Pearson Education, Inc. Publishing as Prentice Hall Slide 17 of 33

Estimating Costs Accumulated Production Experience Curve (Learning Curve) Copyright © 2012 Pearson Education, Inc. Publishing as Prentice Hall Slide 18 of 33

Estimating Costs Target Costing Market research Copyright © 2012 Pearson Education, Inc. Publishing as Prentice Hall Design engineers Slide 19 of 33

g i F e r u 3. 14 The Experience Curve Copyright © 2012 Pearson Education, Inc. Publishing as Prentice Hall Slide 20 of 33

Analyzing Competitors’ Offers Price Costs Reaction “A” “B” Worth to Customer Copyright © 2012 Pearson Education, Inc. Publishing as Prentice Hall Slide 21 of 33

Selecting a Pricing Methods • Markup • Target-return • Perceived-Value • Going-rate • Auction-type Copyright © 2012 Pearson Education, Inc. Publishing as Prentice Hall Slide 22 of 33

g i F e r u 4. 14 High Price (No possible demand at this price) Three Cs Model for Price Setting Ceiling price Customers’ assessment of unique product features Orienting point Competitors’ prices and prices of substitutes Costs Floor Price Low Price (No possible profit at this price) Copyright © 2012 Pearson Education, Inc. Publishing as Prentice Hall Slide 23 of 33

Markup Pricing Variable cost per toaster $10 Fixed costs $300, 000 Expected unit sales 50, 000 Copyright © 2012 Pearson Education, Inc. Publishing as Prentice Hall Slide 24 of 33

Target-Return Pricing Copyright © 2012 Pearson Education, Inc. Publishing as Prentice Hall Slide 25 of 33

g i F e r u 5. 14 Target-Return Pricing Copyright © 2012 Pearson Education, Inc. Publishing as Prentice Hall Slide 26 of 33

Perceived-Value Pricing Customer’s perceived-value • • Performance $$$ Warranty $ Customer support $ Reputation $$ Copyright © 2012 Pearson Education, Inc. Publishing as Prentice Hall Slide 27 of 33

Value Pricing EDLP THOUSANDS OF LOW PRICES EVERY DAY Level of Quality throughout the store P 1 C 1 P 2 C 2 High Pricing Low Copyright © 2012 Pearson Education, Inc. Publishing as Prentice Hall Slide 28 of 33

Going-Rate Pricing Commodities Follow the Leader Copyright © 2012 Pearson Education, Inc. Publishing as Prentice Hall Slide 29 of 33

Auction Pricing English auction (ascending bids) Dutch auction (descending bids) Sealed-bid auction Copyright © 2012 Pearson Education, Inc. Publishing as Prentice Hall Slide 30 of 33

Selecting the Final Price Impact on others Brand Quality Pricing Policies Gain-and-risk-sharing Copyright © 2012 Pearson Education, Inc. Publishing as Prentice Hall Slide 31 of 33

Adapting the Price Geographic Pricing Price Discounts and Allowances Differentiated Pricing Promotional Pricing Copyright © 2012 Pearson Education, Inc. Publishing as Prentice Hall Slide 32 of 33

Dealing with Price Changes Raising Prices Cutting Prices Competitor Moves Copyright © 2012 Pearson Education, Inc. Publishing as Prentice Hall Slide 33 of 33