MT 219 Marketing Unit Six

Pricing

Note: This seminar will be recorded by the instructor.

Review of Unit 5

• How did Unit 5 go? Questions or concerns?

• Instructor suggestions for Unit 6

• Additional questions?

What is Price?

• Value exchanged for products- Money

- Barter

• Only primary source of revenue

Price vs. Non-Price Competition

• In price competition, competitors seek to match or beat the price of competitors

• The major advantage is flexibility in a parity product market• The more a product is like a commodity, the more it is used

• In non-price competition, factors other than price are emphasized• This is especially useful when a marketer has a unique product,

and helps avoid price wars

Assessing Demand

• Demand refers to the quantity of product sold at a particular price over a particular period of time

• The demand curve graphs demand over a range of prices with other factors constant

• In most cases, demand goes up as price goes down• The exception is prestige products. Why?

Price Elasticity

• Measures the sensitivity of demand to price changes

• If acceptable substitutes are available, markets tend to be elastic

• If not, they tend to be inelastic

• Examples of inelastic products?

Pricing Objectives

• Survival- pricing below cost- Not a good way to price unless necessary!

• Profit maximization- Most companies “optimize”• Target profit - setting of a specific target rate of return

for the company• Market share leadership - generate maximum market

share• Product quality leadership - prices at the higher end of

the market to reflect their product quality

Pricing Limits

• Costs set the “floor” for price

• Businesses can’t survive in the long term selling below cost

• Perceived value sets the “ceiling”- Why?

Pricing Bases

• Cost Plus and Markup pricing- Frequently used in retailing

• Demand or value based- priced based on perceived value of the product - varies by what customer is wiling to pay

- Strategy for most premium products.

• Competition based ( status quo ) - most brands priced very close to each other

- Avoid price wars.

Differential Pricing

• This implies that not every customer pays the same- There is a difference.

• Negotiated pricing – bargain for price- houses, cars and home improvements

• Secondary-Market pricing- Common internationally- early-bird specials, bargain matinees or off peak travel discounts- charge less for certain goods in countries where consumers may not have $ to buy them at prices charged in more developed countries

• Periodic discounting - look for these sales at certain times of the year since it allows them to buy at a discount over what they can normally buy the products for

- Year end model clearances, white sales

• Random discounting - since these are done randomly, people will generally stock-up when these types of sales occur since they do not know when the next discount might occur

New Product Pricing

• Skimming – set initial price high. Useful for unique products when competition cannot follow quickly.

• Where does the term come from?• Examples?

• Penetration – set initial price low to capture as much of the market as possible before competition enters.

• Examples?

Product-Line Pricing Strategies

• Captive pricing- Once you buy the basic system you need to buy replacements that often are available only from the maker of the basic system.

- Often used for disposable items- water filters, air freshener replacements, etc.

• Premium pricing - “show higher quality”

• Bait pricing – intention is to get consumer to buy higher priced product with more benefits or accessories.

- Often used in situations where there are personal sales involved, so salesperson can up-sell the customer the higher priced product.

• Price-Lining- Limited price points

Psychological Pricing1. Reference Pricing – compare…assumptions: higher-priced, multiple unit

2. Odd vs. even pricing - odd prices are perceived as lower than even ones

3. Multiple unit pricing

4. Customary pricing – traditional

5. Everyday low pricing

6. Prestige pricing

7. Bundle pricing – similar categories products bundled together.

Promotional Pricing

• Price leaders/Loss leaders – stores place popular items such as eggs or milk at extremely low price to attract customers to the store, hoping they will purchase other products while there

• Special event pricing – name a “holiday”, it’s a good reason to entice people to buy from you..

Segmented Pricing

• Charging different segments different prices

1. time based - “early-bird” specials, matinees2. seasonal - Caribbean cruises are less expensive in June than they

are in December3. location based - football seats on the fifty yard line will cost more than

seats that are not as good4. demographic basis ( senior citizen, student discounts, kid

pricing)

Pricing no-no’ s

• Price fixing (competitors to get together and agree on prices) is never legal

• Predatory pricing issues - pricing below cost to drive competitors out of the market

• Dumping - pricing of exports to other countries extremely low

Any Questions?

Thank you for attending!

See you next week!

Instructor will post the link to the recording of tonight’s seminar in the course Announcements.