Marketing Chapter 9: Pricing Strategies

Chapter 9: Pricing

• Peloton exercise bikes sell at a premium price of 1,895plusa1,895 plus a 1,895plusa39 monthly membership fee.
• Peloton's sales have doubled annually, driven by the COVID-19 pandemic and gym closures.
• Buying a Peloton means more than a bike; it's a lifestyle and a connected community.
• Features include live-streamed classes, an internet-connected tablet, and a sense of community.
• Peloton is positioned similarly to SoulCycle, focusing on experience and community rather than just a workout.
• Peloton offers a financing option, often comparable to the cost of multiple in-person classes.
• Higher prices sometimes signal quality, but Peloton's initial lower price led to perceived lack of quality.

Major Pricing Strategies

• Price is the amount charged for a product or service, the sum of values customers exchange.
• Considerations in pricing include customer perceptions of value (ceiling) and product costs (floor).
• Three main strategies: customer value-based, cost-based, and competition-based pricing.

Customer Value-Based Pricing

• Sets price based on customer value perceptions, focusing on benefits for the consumer.
• Cost-based pricing is product-driven (covering costs plus profit), while value-based pricing is customer-driven (reflecting perceived value).

Good-Value Pricing

• Offers the right combination of quality and service at a fair price.
• Addresses changing consumer attitudes by providing quality at a reasonable price.
  • Examples include ALDI (quality basics at low prices) and Mercedes-Benz CLA (premium value at a reduced price).

Cost-Based Pricing

• Sets prices based on production, distribution, and selling costs plus profit.
• Types of costs include fixed costs, variable costs, and total costs.
• Company Approaches can include low-cost producers (e.g., Walmart, ALDI), or high-value producers (e.g., Apple, BMW).

Break-Even and Target Return Pricing

• Setting price to cover production costs or to reach a specific return.
• Break-even volume = fixed costs / (price - variable costs). This helps determine minimum pricing.
• Companies should balance target profits with realistic sales volumes at each price point.

Competition-Based Pricing

• Sets prices based on competitors' strategies, costs, and market offerings.
• Key questions include how the company's offering compares in value to those of competitors.

Other Internal and External Considerations

• Internal factors: overall marketing strategy, objectives, marketing mix, and organizational considerations.
• External factors: market demand and environmental factors.
• Target costing: sets prices beginning with the ideal selling price and targeting costs to meet it.

Product Mix Pricing Strategies

• Companies need to consider a total profitable price that works for a product mix, not just one product.
• Pricing strategies include product line pricing (price steps between different products), optional-product pricing (pricing accessories), captive-product pricing (must be used with the product), by-product pricing (selling by products to offset costs), and bundle pricing (combining several products).

Price Adjustment Strategies and Price Changes

• Companies adjust prices to account for customer differences and changing situations. This includes discount and allowance pricing, segmented pricing, psychological pricing, promotional pricing, geographical pricing, dynamic/personalized pricing, and international pricing.

Discount and Allowance Pricing

• Discounts are straight reductions in price for specified periods or on large quantities. Examples: cash, quantity, functional, and seasonal discounts.
• Allowances are promotional money given to retailers. Examples: trade-in and promotional allowances.

Segmented Pricing Strategies

• Selling a product or service at different prices based on customer segments. Examples: student or senior discounts.

Psychological Pricing

• Using prices to influence customer perceptions of quality. Customers often perceive higher-priced products as higher quality.

Promotional Pricing

• Temporarily pricing products below list price to create urgency.

Geographical Pricing

• Setting prices based on customer locations. Examples: FOB-origin, uniform-delivered, zone, basing-point, and freight-absorption pricing

Dynamic and Personalized Pricing

• Continuously adjusting prices based on real-time conditions and individual customer characteristics.

International Pricing

• Adjusting prices based on international factors like economic conditions, competition, regulations, consumer preferences, and costs (e.g., shipping, insurance, exchange rates).

Initiating Price Changes

• Pricing cuts: excess capacity, declining demand, strong competition, or economic weakness.
• Price increases can enhance profitability with demand exceeding supply, but risks perceived as price gouging.

Pricing Within Channel Levels

• Price-fixing: illegal collusion to fix prices.
• Predatory pricing is selling below cost to drive out competitors.
• Robinson-Patman Act: Prevents unfair price discrimination across channels.
• Deceptive pricing, including misleading reference prices or discounts, is also prohibited.

Explore the intricacies of pricing strategies in Chapter 9. This quiz delves into various pricing models like customer value-based and cost-based pricing, as well as specific examples like Peloton's premium position and community focus. Test your understanding of how pricing influences consumer perception and purchasing decisions.