Marketing Pricing Strategies

Marketing: Pricing

• Pricing is the amount of money charged for a product or service.
• Pricing determines a firm's market share and profitability.
• Pricing produces revenue.

Objectives Outline

• 9.1: Defining price, identifying three major pricing strategies, and discussing the importance of understanding customer value perceptions, company costs, and competitor strategies.
• 9.2: Identifying and defining external and internal factors affecting pricing decisions.
• 9.3: Describing major strategies for pricing new products.
• 9.4: Explaining how companies find a set of prices that maximizes profits from the total product mix.
• 9.5: Discussing how companies adjust and change prices to account for different customer types and situations.
• 9.6: Discussing major public policy concerns and key legislation affecting pricing decisions.

Customer Value-Based Pricing

• Based on buyers' perceptions of value, not seller's cost.
• Price is considered before the marketing program.
• Types of value-based pricing include good-value pricing and value-added pricing.

Cost-Based Pricing

• Based on the costs of producing, distributing, and selling a product plus a fair rate of return for work and risk.
• Types of costs: fixed costs (overhead), variable costs, total costs.

Types of Cost-Based Pricing

• Cost-plus pricing (markup pricing): Adding a standard markup to the cost of the product.
• Break-even pricing (target return pricing): Setting price to break even on costs of making and marketing a product, or setting price to make a target return.

Competition-Based Pricing

• Setting prices based on competitors' strategies, costs, prices, and market offerings.
• Important questions to assess competitors' strategies:
  • How does the company's offering compare in terms of customer value?
  • How strong are current competitors?
  • What are their current pricing strategies?

New Product Pricing Strategies

• Market-skimming pricing (price skimming): Setting a high price to quickly skim revenues from segments willing to pay high prices.
• Market-penetration pricing: Setting a low price to attract a large number of buyers and a large market share.

Product Mix Pricing

• Product line pricing: Setting prices across an entire product line.
• Optional-product pricing: Pricing optional or accessory products sold with the main product.
• Captive-product pricing: Pricing products that must be used with the main product.
• By-product pricing: Pricing low-value by-products to get rid of them or make money on them.
• Product bundle pricing: Pricing bundles of products sold together.

Price Adjustment Strategies

• Discount and allowance pricing: Reducing prices to reward responses like volume purchases, early payments, or promotions.
• Segmented pricing: Adjusting prices to account for differences in customers, products, or locations. (Customer-segment, product-form, location-based, time-based).
• Psychological pricing: Adjusting prices for psychological effect.
• Promotional pricing: Temporarily reducing prices to drive short-term sales.
• Geographical pricing: Adjusting prices to account for customer geographic location (FOB-origin, uniform-delivered, zone, basing-point, freight-absorption).
• Dynamic pricing: Continuously adjusting prices to meet individual customer characteristics and needs.
• International pricing: Adjusting prices for international markets.

Initiating Price Changes

• Reasons for price cuts: Excess capacity, falling demand, attempting to dominate the market.
• Reasons for price increases: Cost inflation, over-demand.

Responding to Price Changes

• Buyer's perspective: Price increases perceived as exclusive/better quality, but also as greedy; price cuts perceived as getting better deals, better quality product, but as indication of damaged quality/company's image.
• Competitor's perspective: Price cuts to gain market share, trying to boost sales; price increase perceived as making the product exclusive/better and greedy.

Public Policy Issues in Pricing

• Public policy concerns in pricing: retail price maintenance, price-fixing, predatory pricing, discriminatory pricing, deceptive pricing.

Other Internal and External Considerations

• Internal: Overall marketing strategy, objectives, and mix; organizational considerations.
• External: Market and demand, economy, impact on other companies and parties in the environment.

Explore the fundamental concepts of pricing in marketing, including various strategies and factors influencing pricing decisions. This quiz covers customer value perceptions, pricing new products, and adjusting prices for different customer segments. Test your understanding of how pricing affects a firm's profitability and market share.