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Chapter 7

Developing a Pricing Strategy



COPYRIGHT © 2002 by Thomson Learning, Inc. All Rights Reserved

The Importance of Pricing

2 fundamental ways to grow revenue

– raise your price

– increase the quantity you sell

Price is the easiest of all marketing variables to

influence

– price changes may be implemented immediately






Sellers Must Consider the

Following Costs...Direct

– finished goods/components, materials, supplies,

sales commissions & transportation

Indirect

– overhead, such as administrative expenses, utilities,

rent & equipment




Additional Pricing

Considerations... All costs, including opportunity costs, should be

considered

It’s difficult to cover cost levels generated byinefficiency

Bottom line impacts should be communicated,

not just price

Must reflect an understanding of competitors’

pricing strategies




Customer Issues in Pricing...

Contributes to an overall positive evaluation of

the purchase decision

Driven by the concept of value

Different target markets have different

perceptions of value

Buyers have increasing power




Price Elasticity

Percentage change in the quantity demanded

compared to the percentage change in price

Elasticity increases when the price of substituteproducts falls




Price Inelasticity

Inelasticity increases when the prices for

complementary products fall

Inelasticity increases when the total expenditurefor the product is small

Inelasticity increases when situational influences

reduce the choices a consumer has






Prestige Pricing...

Name some companies that successfully use a

prestige pricing strategy.

How does this 1 marketing variable assist indefining the product’s positioning in consumers

minds?




Price Bundling...

Give examples of companies that successfully

couple their complementary product together.

Why are some companies willing to discounttheir prices to be packaged with another

product?




Fixed Versus Negotiated Pricing

Internet websites have increased the popularity

of price bidding

Historically the auto industry has usednegotiated pricing

Negotiated pricing is common in business

marketing

Negotiated pricing can be a long and frustrating

process




Legal & Ethical Issues in Pricing

Price fixing

– antitrust issues

Deceptive pricing

– fraud

Superficial discounting

Price discrimination

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strategic marketin