What Is a Price?
Price is the only element in the marketing mix that produces revenue; all other elements represent costs
Customer Perceptions of Value
Understanding how much value consumers place on the benefits they receive from the product and setting a price that captures that value
1 Selecting the pricing objective.
Pricing objectives Describe what a firm wants to achieve through pricing
Form the basis of decisions about other stages in establishing prices
Must be explicitly stated and include a time frame.
Product Quality
Product Quality
This ad for Kellogg’s Corn Flakes focuses on high
product quality.
Product quality pricing objective: Set prices to recover research and development expenditures and establish a high-quality image
2. Determining Demand.
Each price will generate different demand and will have different impact on company’s marketing objectives. The relationship between price and demand can be expressed through demand curve. The price and demand is inversely related. The higher the price, the lower is the demand sometimes high price denotes better product. The demand can be determined on following bases-I.Price sensitivity
II.Estimating demand curves.
I.Price elasticity of demand.
The firm will charge a price that covers its cost of producing, ,and selling the product including a return for its risk. Even when companies price products to cover their full costs, it will not always result in net profitability.
Estimating costs
Analyzing competitors costs, prices and offers:In competitive situations, marketers must keep
prices the same as, or lower than, competitors’ prices.
In some instances, an organization’s prices are designed to be slightly above competitors’ prices to give its products an exclusive image, or below competitors to generate a low-cost image.
Wal-Mart has “Everyday low prices” Starbucks has premium-priced beverages
Selecting the price method Cost-based pricing: adding a some amount or percentage to the cost of the
product Cost-plus pricing: adding a specific amount or percentage to the seller’s
cost Markup pricing: adding to the cost of the product
a predetermined percentage of that costRetailer buys product at 45 Rs., adds 15 Rs Price = 60 Rs.
Markup as a percentage of cost = markup cost
= 15 45
= 33.3 percentMarkup as a percentage of selling price = markup
selling price= 15 60= 25 percent
Selection of a Basis: Demand and Competition-Based Pricing
Demand-based pricing Based on the level of demand for
the product Competition-based pricing
Influenced primarily by competitor’s prices
Demand-Based Pricing
Rental car rates are frequently based on demand. High demand
results in higher prices. Prices are lower when demand is low.
Differential Pricing Charging different prices to different buyers for the same quality and quantity of productNegotiated pricing: Establishing a final
price through bargainingSecondary-market pricing: Setting one
price for the primary target market and a different price for another market
Periodic discounting: Temporary reduction of prices on a patterned or systematic basis
Random discounting: Temporary reduction of prices on an unsystematic basis
New-Product Pricing
Price skimmingCharging the highest possible price that
buyers who most desire the product will pay
Penetration pricingSetting prices below those of competing
brands to penetrate a market and gain a significant market share quickly
Product-Line PricingEstablishing and adjusting prices of
multiple products within a product line Captive pricing: Pricing the basic product in a
product line low while pricing related items at a higher level
Premium pricing: Pricing the highest-quality or most versatile products higher than other models in the product line
Bait pricing: Pricing an item in the product line low with the intention of selling a higher-priced item in the line
Price lining: Setting a limited number of prices for selected groups or lines of merchandise
Product-Line Pricing
Captive Pricing
The Gillette razor is inexpensive. To use this razor on a regular basis, customers must by the
replacement blade cartridges. The annual cost of the replacement blade cartridges is significant.
Gillette is using captive pricing.
Psychological Pricing Pricing that attempts to influence a customer’s
perception of price to make a product’s price more attractive Reference pricing: Pricing a product at a moderate level
and displaying it next to a more expensive model or brand Multiple-unit pricing: Packaging together two or more
identical products and selling them for a single price Odd-even pricing: Ending the price with certain
numbers to influence buyers’ perceptions of the price or product
Customary pricing: Pricing on the basis of tradition
Psychological Pricing
Bundle pricing Packaging together two
or more complementary products and selling them for a single price
Bundle Pricing
Price bundling is commonly used in the communications industry,
including phone, TV cable, and internet services.
Psychological Pricing Everyday low prices
(EDLP) Setting a low price for
products on a consistent basis
Everyday Low Price
Wal-Mart is well-known for using the Everyday
Low Prices strategy.
Psychological Pricing Prestige pricing
Setting prices at an artificially high level to convey prestige or a quality image
Prestige Pricing
Organizations employ prestige pricing to help support and
communicate a premium, high-quality product
Promotional PricingPrice leaders
Product priced below the usual markup, near cost or below cost
Special-event pricing Advertised sales or price cutting linked to a
holiday, season or eventComparison discounting
Setting a price at a specific level and comparing it with a higher price
Determination of a Specific Price• A flexible and convenient way to adjust
the marketing mix• To set the final price, it is important for
marketers to:1. Establish pricing objectives2. Have considerable knowledge about target-market
customers3. Determine demand, price elasticity, costs, and
competitive factors
After Reviewing This Chapter You Should:
1. Understand the six major stages of the process used to establish prices.
2. Know the issues that are related to developing pricing objectives.
3. Understand the importance of identifying the target market's evaluation of the price.
4. Be able to describe how marketers analyze. competitive prices.
5. Be familiar with the bases used for setting prices.
6. Be able to explain the different types of pricing strategies.
7. Understand how a final specific price is determined.