Marketing Chapter 11: Pricing Concepts

Chapter 11: Pricing Concepts and Strategies: Establishing Value

• This chapter covers pricing concepts and strategies in marketing.
• Key learning objectives (LOs) are included to guide learning.
• The importance of price in establishing value in marketing is explained.
• The influence of the 5 C's (company objectives, customers, costs, competition, and channel members) on pricing decisions is illustrated.
• Pricing methods (cost-based, competitor-based, and value-based) and strategies (EDLP, high/low, new product pricing) are discussed.
• Pricing tactics targeted at channel members and consumers are identified.
• Legal and ethical issues in pricing are summarized.
• Disney's sophisticated pricing strategies for their amusement parks are highlighted.
• Price is a strategic opportunity to create value and not an afterthought in the overall marketing mix.
• Pricing signals quality; different prices can indicate different levels of quality.

Role of Price in the Marketing Mix

• Price is often a major factor in purchase decisions.
• It's the only element of the marketing mix that generates revenue.
• Managing price is crucial and often complex for marketers.

The Five C's of Pricing

• The 5 C's—company objectives, customers, costs, competition, and channel members—are interconnected to determine pricing strategy.

1st C: Company Objectives

• Profit orientation: Maximizing profits and target return pricing.
• Sales orientation: Focus on sales volume over profit.
• Competitor orientation: Basing pricing decisions on competitive pricing strategies.
• Customer orientation: Focusing on value and understanding consumer needs.

2nd C: Customers

• Understanding consumer response to price is paramount.
• Consumers value products that align with their needs and prices.

Demand Curves & Pricing

• Knowing demand curves reveals relationships between price and demand.
• Demand increases as price decreases and vice versa.
• Prestige products have unique demand curves.
• Premium pricing is a strategy used with prestige products.

3rd C: Costs

• Variable costs change based on production volume.
• Fixed costs remain constant regardless of production volume.
• Total cost is the sum of variable and fixed costs.
• Break-even analysis helps determine the point where revenue equals costs.

4th C: Competition

• Different degrees of competition influence pricing strategies.
• Types of competition include monopoly (one firm), oligopoly (few firms), monopolistic competition (many firms with differentiated product), and pure competition (many commodities at the same price).

5th C: Channel Members

• Manufacturers, wholesalers, and retailers have varied perspectives on pricing.
• Manufacturers need protections from grey market transactions.

Pricing Methods & Strategies

• Cost-based, competitor-based, and value-based pricing methods are used to determine prices.

Psychological Factors

• Value-based pricing comprises different strategies: New product pricing, Everyday Low Pricing (EDLP), and High/Low pricing.

Everyday Low Pricing (EDLP)

• EDLP, or everyday low pricing, saves customers the effort of finding the most affordable product, encouraging consumers to buy at a reasonable rate.

High-Low Pricing

• High-low pricing relies on sales events that incentivize purchases, including discounts and special offers.

New Product Pricing Strategies

• Price skimming and market penetration pricing are common strategies for new products.

Pricing Tactics - Consumers

• Pricing lining, price bundling, and leader pricing are examples of pricing tactics to encourage consumer purchases.

Price Lining

• Price lining sets a price floor and ceiling for a product range.

Price Bundling

• Bundled pricing involves offering multiple products or services at a lower price.

Leader Pricing

• Leader pricing focuses on popular items to attract customers, with the intention of also generating more purchases of complementary products.

Consumer Price Reductions

• Markdowns, coupons, and rebates reduce prices.

Markdowns

• Markdowns are used to clear out obsolete or slow-moving items, while also attracting customers.

Quantity Discounts for Consumers

• Larger quantities often result in a lower per-unit cost.

Coupons & Rebates

• Retailers are responsible for providing coupons, while manufacturers and providers deal with rebate issues.

Business-to-Business Pricing Tactics & Discounts

• Discounts for businesses include seasonal discounts, cash discounts, allowances (advertising and listing), quantity discounts, and uniform delivered pricing.

Seasonal Discounts & Cash Discounts

• Seasonal discounts encourage early purchases.
• Cash discounts incentivize prompt payments.

Allowances

• Advertising and listing allowances can improve consumer behaviour and drive sales.

Quantity Discounts

• Quantity discounts incentivize bulk orders.

Uniform Delivered Pricing

• With uniform delivered pricing, the shipping cost remains the same for anywhere in the region of sale.

Legal & Ethical Aspects of Pricing

• Pricing strategies can relate to misleading advertising, price discrimination, predatory pricing, and price fixing.

Deceitful or Illegal Price Advertising, Price Fixing & Price Discrimination

• Misleading advertising involves presenting a deceptive reference price to attract customers.
• Price fixing involves coordinating with other companies to control prices.
• Price discrimination involves charging different prices to different customers or resellers.
• Predatory pricing involves setting prices very low in order to drive competitors out of business.

This quiz focuses on Chapter 11 of marketing principles, which delves into pricing concepts and strategies for establishing value. It covers essential pricing methods, the influence of the 5 C's, and legal considerations, with a case study on Disney's pricing strategies in amusement parks.