3. Increase profits
Attract new customers
Maintain current customers
Increase profit per customer
Introduce new product
Generate cash
Improve Return On Investment
4.
5.
6.
7.
8.
9.
10.
11. Synonyms for Price
Rent
Tuition
Fee
Fare
Rate
Toll
Premium
Honorarium
Special
assessment
Bribe
Dues
Salary
Commission
Wage
Tax
12. The Components of Total Cost
Used in Determining Pricing
Total Costs
Sum of the Fixed and Variable Costs for a Given
Level of Production
Fixed Costs
(Overhead)
Costs that don’t
vary with sales or
production levels.
Rent on the Arena
Transportation
Salaries
Variable Costs
Costs that do vary
directly with the
level of production.
Raw materials
Packaging
Materials
13. The Three C’s Model
for Price Setting
Costs Competitors’
prices and
prices of
substitutes
Customers’
assessment
of unique
product
features
Low Price
No possible
profit at
this price
High Price
No possible
demand at
this price
16. Attract New Customers
Introductory coupons /
discounts
provide incentive
maintain reference price
Trial offers
increase familiarity
reduce risk
Problem
perceived as unfair
17. Pricing Common Mistakes
Number one problem facing marketing
executives
Too cost oriented
Not revised enough to reflect changes
in market
Do not take entire marketing mix into
account
Not varied enough for different
products, different market segments,
different purchase occasions
18. Price Cues
“Left to right” pricing ($299
vs. $300)
Odd number discount
perceptions
Even number value
perceptions
Ending prices with 0 or 5
“Sale” written next to price
20. Pricing strategies change as the product
passes through its life cycle
•PREMIUM STRATEGY
• Producing a high-quality product
and charging the highest price
•ECONOMY STRATEGY
•Producing a lower quality product but charging
a low price
Rolex vs Timex watches
21. •GOOD VALUE STRATEGY
•“We have high quality, but at a lower
price”
•OVERCHARGING STRATEGY
•Company overprices its product
in relation to its quality
•GM uses combination of strategies, offering
various automobiles
Hummer – Cadillac - Pontiac
Marriott – Courtyard Marriott – Residence Inn
23. “Penetration” is a market
share maximization strategy
Penetration Pricing
•Setting a low initial price
•Attract large number of buyers
•Win large market share
•Low price serves as barrier to entry for
competitors
24. “Skimming” is a profit
maximization strategy
Market Skimming –
•Setting initial high prices for a
short time before lowering prices to
more competitive levels
•Ex: iPhone, new albums,
movies
•As sales slow or competitors
introduce similar products, price is
lowered
25. •Follow-the-leader pricing strategy
•uses a particular competition as
a model
•Variable pricing strategy
•offer price concessions to
certain customer
•Flexible pricing strategy
•take into consideration special
market conditions
•What the traffic will bear
•only used when there is little or
no competition
Tactics For
Fine-Tuning
26. Pricing Strategies
Differential Pricing Strategies
Discriminatory pricing
• Selling same product/service to
different buyers at different price
• Movies tickets sold to
children/over 65 for discount
• Priceline.com
Second-market discounting
• Students get in free at Vanderbilt
football games
• Golf courses weekend versus
weekday pricing
When you name your price, the seller
has already told Priceline what minimum
price he is willing to accept. The
difference from traditional retailing is
that you, the buyer, don't know what that
price is. That's a breakthrough, all right.
For sellers. Priceline offers them a clever
way to charge different prices to
different customers, based on their
willingness to pay.
27. Psychological Pricing
Price is based on
consumer’s emotion
and image rather than
economy
Prestige Pricing
Setting an artificially
high price to provide a
distinct image
Reference Pricing
Lesser know brands
featured next to name
brands to reflect value
$999.99
VS
28. Product Line Pricing
Setting price steps between items in the
same product line
Each product offers more features
John Deere tractors 1200.00 – 5000.00
Armani Sports Coats 250 – 500 – 850
Prices should consider
Differences between products, customer
evaluations of features, and benefits &
competitors prices
31. Optional Product Pricing
Pricing optional or accessory
products sold with the main product
Which products to include in base
price, and which to offer as options
Car – power windows, cruise
control, radio with CD player,
DVD player
32. By-product Pricing
Pricing low-value by-products to get rid
them, or to reduce the price of the main
product
Chicken processors sell feathers
to mattress and pillow makers
Lumber mills sell bark and
sawdust as decorative mulch for
home and commercial
landscaping
Allows producer to reduce main product
price and become more competitive
33. Captive Product Pricing
Pricing products that must be used
with main product
Razor blades used with special handle
Camera film that is camera specific
Computer software
Main products are priced low
Set high markup on captive product
34. Two-part Pricing
The price of the service is broken into a
fixed fee and a variable usage fee
Telephone charges monthly rate – fixed
fee
Charges for calls beyond certain amount of
minutes – variable usage fee
Fixed amount must be low enough to
induce usage of service
Profit is made on variable fees
35. Product Bundle Pricing
Combining several products and offering
the combination at a price below that of
buying the products individually
Theatres & sports teams selling season
tickets
Hotel packages that include room, meals,
and entertainment
Restaurants offer complete meals rather
than individual items from a la carte menu
Promotes sale of products that might not
purchased otherwise
36. Bundling at Disney World
Products:
Each Park Entrance
“Hopper” Option
Where is the 1 day hopper?
(These are the 2005 prices)