Dr. Chen, Principle of Marketing Part 4 Part 4 PRODUCT AND PRICE DECISIONS

Dr. Chen, Principle of Marketing

Part 4PRODUCT AND PRICE DECISIONS


10: Product, Branding, and Packing Concepts

11: Business Markets and Buying Behavior

12: Developing and Managing Prices

13: Marketing Channels and Supply-Chain Management

14: Retailing, Direct Marketing, and Wholesaling


Chapter 12 Pricing Concepts and

Management

Professor Jason C. H. Chen, Ph.D.

School of Business Administration

Gonzaga University

Spokane, WA 99258

[email protected]

Dr. Chen, Principle of Marketing4

Marketing Applications


2. Price skimming and penetration pricing are strategies that are commonly used to set the base price of a new product. Which strategy is more appropriate for the following products? Explain. Short airline flights between cities in Florida A Blu-ray player A backpack or book bag with a lifetime warranty Season tickets for a newly franchised NBA

basketball team


Pricing Strategies Matrix

Low

High

PR

ICE

Economy

Skimming

Penetration

Premium

Figure: Pricing Strategies Matrix

Low HighQUALITY

Short airline flights; A Blu-ray player; A backpack or book bag with a lifetime warranty; Season tickets for a newly franchised NBA basketball team

short airline flights backpack with a lifetime warranty

Blu-ray players

new NBA team season tickets


Price skimming is charging the highest possible price that buyers who most desire the product will pay. It is most appropriate for short airline flights and the backpack with a lifetime warranty because these products offer additional utility to consumers.

Penetration pricing is setting prices below those of competing brands to penetrate a market and gain a significant market share quickly. It is most appropriate for Blu-ray players and new NBA team season tickets because these products need to gain market share quickly in order to survive in the market.


Pricing Strategies Matrix

Economy pricing keep costs low and the service basic (no frills), set price low

Penetration pricing looking for market share, set price low

Skim pricing no competition, go after price-insensitive customers, set price

high

Premium pricing unique product, set price high


3. Price lining is used to set a limited number of prices for selected lines of merchandise. Visit a few local retail stores to find examples of price lining. For what types of products and stores is this practice most common? For what types of products and stores is price lining not typical or feasible?

In general, price lining simplifies customers’ decision making

by holding constant one key variable in the final selection of style and brand within a line. If the prices are attractive, customers will concentrate their purchases without responding to slight changes in price.

The most common types of products that have price lining are clothing and some types of food (regular vs. organic groceries). However, it is not common for high-priced items.


Internet Exercise

T-Mobile T-Mobile has attempted to position itself as

a low-cost cellular phone service provider. A person can purchase a calling plan, a cellular phone, and phone accessories at its website. Visit the T-Mobile website at www.t-mobile.com.

http://www.t-mobile.com/


1. How many different calling plans are available in your area?

Students’ answers will vary based on their

locations and T-Mobile’s coverage.


2. What type of pricing strategy is T-Mobile using on its rate plans in your area?

The most common pricing strategies are differential

pricing, new-product pricing, product-line pricing, psychological pricing, professional pricing, and promotional pricing.

T-Mobile typically uses bait pricing with the intent of selling other high-priced products and services later, but students may find other examples. The company also uses bundle pricing to get customers to buy packages of services.


Video Case 12.1

PRICING AT THE FARMERS’ MARKET


Summary This case examines the issues associated with direct selling

and pricing for farmers at local markets. Selling directly to the public enables farmers to build relationships with local shoppers and encourage repeat buying week after week as different items are harvested. It also allows farmers to realize a larger profit margin than if they sold to wholesalers and retailers because there are no intermediaries. In addition, consumers are willing to pay a higher price for top-quality local products, and even more for products that have been certified organic by a recognized authority. However, competition between farmers, markets, and traditional grocery stores is a factor that influences pricing.


1. In the pursuit of profits, how might Urban Farmz use a combination of cost-based, demand-based, and competition-based pricing for the products it sells? Explain your answer.

Encourage students to be creative. Cost-based

pricing adds a dollar amount or percentage to the cost of the product. Demand-based pricing is based on the level of demand for the product.

Competition-based pricing is influenced primarily by competitors’ prices. Urban Farmz should be using all of these strategies and tailoring them to specific products.


2. Urban Farmz wants to price the organic soap at $15.95 per bar, while the soap maker prices the same soap at $14 per bar. What perceptions do you think consumers will have of each price? What recommendations do you have regarding this price difference?

Consumers may have different perceptions—they may

believe that the Urban Farmz bar is fairly priced since they can buy it directly without ordering it online, or they may believe that Urban Farmz is adding an unfair market.

However, given the requests of the soap maker, Urban Farmz should charge the higher price. Consumers may not want to buy online or pay for shipping, and Urban Farmz will still make a profit.


3. Would you recommend that Urban Farmz use promotional pricing at the farmers’ markets where it regularly sells its products? If so, which techniques would you suggest, and why?

Generally, Urban Farmz should not use

promotional pricing because it sends a signal to consumers about the quality of their unique products. However, bulk discounts or similar promotions may help stimulate business.

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Dr. Chen, Principle of Marketing Part 4 Part 4 PRODUCT AND PRICE DECISIONS