Principles of Marketing PDF

Principles of Marketing Nineteenth Edition, Global Edition Chapter 11 Pricing Strategies: Advanced Topics Copyright © 2024 Pearson Education Ltd. Al...

Principles of Marketing Nineteenth Edition, Global Edition Chapter 11 Pricing Strategies: Advanced Topics Copyright © 2024 Pearson Education Ltd. All Rights Reserved. Learning Objectives 11.1 Describe the major strategies for pricing new products. 11.2 Explain how companies choose a portfolio of prices to maximize the profits from the total product mix. 11.3 Discuss how companies adjust their prices to account for different types of customers and situations. 11.4 Discuss the key issues related to initiating and responding to price changes. 11.5 Discuss the major public policy concerns and key laws and regulations that affect pricing decisions. Copyright © 2024 Pearson Education Ltd. All Rights Reserved. ALDI: You Can’t Eat Frills, So Why Pay for Them? AL DI promises a unique shopping experience that delivers “a faster, easier, and smarter way to save money on high-quality groceries and more. AL DI does things ‘differently’ to bring you amazing low prices.” Ken Wolter/Shutterstock Copyright © 2024 Pearson Education Ltd. All Rights Reserved. Learning Objective 1 Describe the major strategies for pricing new products. Copyright © 2024 Pearson Education Ltd. All Rights Reserved. New Product Pricing Strategies (1 of 2) Market-skimming pricing strategy sets high initial prices to “skim” revenue layers from the market. Product quality and image must support the price. Buyers must want the product at the price. Copyright © 2024 Pearson Education Ltd. All Rights Reserved. New Product Pricing Strategies (2 of 2) Market-penetration pricing involves setting a low price for a new product in order to attract a large number of buyers and a large market share. Penetration pricing: Gillette prices its Fusion ProGlide starter pack low to attract a large market share and then makes money over time through sales of high-margin refill blades. Vladimir Zhupanenko/Shutterstock Copyright © 2024 Pearson Education Ltd. All Rights Reserved. Learning Objective 2 Explain how companies choose a portfolio of prices to maximize the profits from the total product mix. Copyright © 2024 Pearson Education Ltd. All Rights Reserved. Product Mix Pricing Strategies Product line pricing Optional product pricing Captive product pricing By-product pricing Product bundle pricing Copyright © 2024 Pearson Education Ltd. All Rights Reserved. Product Mix Pricing Strategies (1 of 3) Product Line and Optional Product Pricing Product line pricing takes into account the cost differences between products in the line, customer evaluations of their features, and competitors’ prices. Optional product pricing takes into account optional or accessory products along with the main product. Copyright © 2024 Pearson Education Ltd. All Rights Reserved. Product Mix Pricing Strategies (2 of 3) Captive product pricing sets prices of products that must be used along with the main product. Copyright © 2024 Pearson Education Ltd. All Rights Reserved. Product Mix Pricing Strategies (3 of 3) Product Line and Optional Product Pricing By-product pricing sets a price for by-products in order to make the main product’s price more competitive. Product bundle pricing combines several products at a reduced price. By-product pricing: U.S. poultry processors have turned chicken feet, mostly considered a waste product, into a profitable by-product by selling them in China, where they are considered a delicacy and often priced higher than actual chicken meat. Santiparp Wattanaporn/Shutterstock Copyright © 2024 Pearson Education Ltd. All Rights Reserved. Learning Objective 3 Discuss how companies adjust their prices to account for different types of customers and situations. Copyright © 2024 Pearson Education Ltd. All Rights Reserved. Price Adjustment Strategies Table 11.2 Price Adjustments Strategy Description Discount and allowance Reducing prices to reward customer responses such as volume pricing purchases, paying early, or promoting the product Segmented pricing Adjusting prices to allow for differences in customers, products, or locations Psychological pricing Adjusting prices for psychological effects Promotional pricing Temporarily reducing prices to spur short-run sales Geographical pricing Adjusting prices to account for the geographic location of customers Dynamic and personalized Adjusting prices continually to meet the characteristics and needs of pricing individual customers and situations International pricing Adjusting prices for international markets Copyright © 2024 Pearson Education Ltd. All Rights Reserved. Price Adjustment Strategies (1 of 12) Discount pricing reduces prices on purchases during a stated period of time or of larger quantities. Allowances discount list prices by providing promotional money in return for an agreement to feature the manufacturer’s products in some way. Allowances include trade-in allowances and promotional allowances. Copyright © 2024 Pearson Education Ltd. All Rights Reserved. Price Adjustment Strategies (2 of 12) Segmented Pricing Customer-segment pricing Product form pricing Location-based pricing Time-based pricing Copyright © 2024 Pearson Education Ltd. All Rights Reserved. Price Adjustment Strategies (3 of 12) Segmented Pricing For segmented pricing to be effective: Market must be segmentable Segments must show different degrees of demand Costs of segmenting cannot exceed the extra revenue Must be legal Copyright © 2024 Pearson Education Ltd. All Rights Reserved. Price Adjustment Strategies (4 of 12) Segmented pricing involves selling a product or service at two or more prices, where the difference in prices is not based on differences in costs. Segmented pricing: Microsoft and other electronics brands have launched dedicated online stores for military members, veterans, and their families, with discounts of 10 percent or more on the wide range of products offered there. Microsoft Corporation Copyright © 2024 Pearson Education Ltd. All Rights Reserved. Price Adjustment Strategies (5 of 12) Psychological Pricing Psychological pricing considers the psychology of prices and not simply the economics; the price is used to say something about the product. Reference prices are prices that buyers carry in their minds and refer to when they look at a given product. Psychological pricing: Dunkin’s S!p coffee experiment showed that price and context can affect brand perceptions. Dunkin' Donuts Copyright © 2024 Pearson Education Ltd. All Rights Reserved. Price Adjustment Strategies (6 of 12) Promotional Pricing Promotional pricing is characterized by temporarily pricing products below the list price, and sometimes even below cost, to increase short-run sales. Examples include: special-event pricing limited-time offers cash rebates low-interest financing, extended warranties, or free maintenance Promotional pricing: Some marketers bombard consumers with endless Keri Miksza price promotions, eroding the brand’s value. “Shopping with a coupon at Bed Bath & Beyond has begun to feel like a given instead of like a special treat.” Copyright © 2024 Pearson Education Ltd. All Rights Reserved. Price Adjustment Strategies (7 of 12) Geographical pricing is used for customers in different parts of the country or the world. FO B-origin pricing Uniform-delivered pricing Zone pricing Basing-point pricing Freight-absorption pricing Copyright © 2024 Pearson Education Ltd. All Rights Reserved. Price Adjustment Strategies (8 of 12) Geographical Pricing FO B-origin (free on board) pricing is a geographical pricing strategy in which goods are placed free on board a carrier; the customer pays the freight from the factory to the destination. Uniform-delivered pricing is a geographical pricing strategy in which the company charges the same price plus freight to all customers, regardless of their location. Copyright © 2024 Pearson Education Ltd. All Rights Reserved. Price Adjustment Strategies (9 of 12) Geographical Pricing Zone pricing is a strategy in which the company sets up two or more zones where customers within a given zone pay the same price. Basing-point pricing means that a seller selects a given city as a “basing point” and charges all customers the freight cost from that city to the customer. Copyright © 2024 Pearson Education Ltd. All Rights Reserved. Price Adjustment Strategies (10 of 12) Geographical Pricing Freight-absorption pricing is a strategy in which the seller absorbs all or part of the freight charges in order to get the desired business. Copyright © 2024 Pearson Education Ltd. All Rights Reserved. Price Adjustment Strategies (11 of 12) Dynamic pricing involves adjusting prices continually to meet the characteristics and needs of individual customers and situations. Dynamic online pricing benefits both sellers and buyers. Consumers armed with instant access to product and price comparisons can often negotiate better in- store prices. Dynamic pricing: Thanks to the internet and apps such as ShopSavvy, smart shoppers can now routinely compare prices online to take advantage of the constant price skirmishes among sellers, snap up good deals, and leverage retailer price-matching policies. Dynamic pricing done poorly, however, can cause shopper confusion, disgruntlement, or brand distrust. Courtesy of ShopSavvy Copyright © 2024 Pearson Education Ltd. All Rights Reserved. Price Adjustment Strategies (12 of 12) International pricing involves adjusting prices continually to meet the characteristics and needs of individual customers and situations. International prices: Companies often must change their pricing strategies from country to country. For example, Apple sells its latest phones at premium prices to affluent Chinese customers but successfully launched its iPhone 13 at a lower price while also introducing the iPhone13 Mini at a lower price point aimed at China’s CookieWei/Shutterstock midrange customers. Copyright © 2024 Pearson Education Ltd. All Rights Reserved. Learning Objective 4 Discuss the key issues related to initiating and responding to price changes. Copyright © 2024 Pearson Education Ltd. All Rights Reserved. Price Changes (1 of 5) Initiating Price Changes Price cuts occur due to: Excess capacity Increased market share Price increases occur due to: Cost inflation Increased demand Lack of supply Price reduction strategy: Thanks to its lower prices, Wavestorm is now the surfboard market leader. Image by Stan Moniz; Owned by Agit Global, Inc. Copyright © 2024 Pearson Education Ltd. All Rights Reserved. Price Changes (2 of 5) Buyer Reactions to Pricing Changes Price increases – Product is “hot” – Company greed Price cuts – New models will be available – Models are not selling well – Quality issues Initiating price increases: When gasoline prices rise rapidly, regardless of the reason, angry consumers often accuse the major oil companies of enriching Jerry and Marcy Monkman/EcoPhotography.com/Alamy Stock Photo themselves by gouging customers. Copyright © 2024 Pearson Education Ltd. All Rights Reserved. Price Changes (3 of 5) Competitor Reactions to Pricing Changes Why did the competitor change the price? Is the price cut permanent or temporary? Is the company trying to grab market share? Is the company doing poorly and trying to increase sales? Is it a signal to decrease industry prices to stimulate demand? Copyright © 2024 Pearson Education Ltd. All Rights Reserved. Price Changes (4 of 5) Figure 11.1 Responding to Competitor Price Changes Copyright © 2024 Pearson Education Ltd. All Rights Reserved. Price Changes (5 of 5) Responding to Pricing Changes Effective Action Responses Reduce price to match competition Maintain price but raise the perceived value through communications Improve quality and increase price Launch a lower-price “fighting” brand Fighter brands: Intel launched its Celeron microprocessor as a fighter brand to compete head-to-head with competitor AMD’s lower-priced Ralf Liebhold/Shutterstock processors, allowing Intel’s high-end Pentium processor line to maintain its premium prices. Copyright © 2024 Pearson Education Ltd. All Rights Reserved. Discussion Question (1 of 2) How should a company respond to a competitor’s price changes? Copyright © 2024 Pearson Education Ltd. All Rights Reserved. Learning Objective 5 Discuss the major public policy concerns and key laws and regulations that affect pricing decisions. Copyright © 2024 Pearson Education Ltd. All Rights Reserved. Public Policy and Pricing (1 of 5) Figure 11.2 Public Policy Issues in Pricing Source: Adapted from Dhruv Grewal and Larry D. Compeau, “Pricing and Public Policy: A Research Agenda and Overview of the Special Issue,” Journal of Public Policy and Marketing, Spring 1999, pp. 3–10. Copyright © 2024 Pearson Education Ltd. All Rights Reserved. Public Policy and Pricing (2 of 5) Pricing Within Channel Levels Price fixing legislation requires sellers to set prices without talking to competitors. Predatory pricing legislation prohibits selling below cost with the intention of punishing a competitor or gaining higher long-term profits by putting competitors out of business. Predatory pricing: Some industry critics have accused Amazon.com of pricing books at fire-sale prices that harm competing booksellers. But is it predatory pricing or just plain good competitive marketing? imageBROKER/Alamy Stock Photo Copyright © 2024 Pearson Education Ltd. All Rights Reserved. Public Policy and Pricing (3 of 5) Pricing Across Channel Levels Robinson-Patman Act prevents unfair price discrimination by ensuring that the seller offer the same price terms to customers at a given level of trade. Price discrimination is allowed if the seller: can prove that costs differ when selling to different retailers. manufactures different qualities of the same product for different retailers. Copyright © 2024 Pearson Education Ltd. All Rights Reserved. Public Policy and Pricing (4 of 5) Pricing Across Channel Levels Retail (or resale) price maintenance occurs when a manufacturer requires a dealer to charge a specific retail price for its product, which is prohibited by law. Pharmaceutical Pricing: No Easy Answers Responsible pharmaceutical pricing: Most consumers understand that they will have to pay the price for beneficial drugs. They just want to be treated fairly in the process. pixelrobot/123RF Copyright © 2024 Pearson Education Ltd. All Rights Reserved. Public Policy and Pricing (5 of 5) Pricing Across Channel Levels Deceptive pricing occurs when a seller states prices or price savings that mislead consumers or are not actually available to consumers. Bogus reference or comparison prices Scanner fraud and price confusion Copyright © 2024 Pearson Education Ltd. All Rights Reserved. Discussion Question (2 of 2) Describe the major public policy issues. Copyright © 2024 Pearson Education Ltd. All Rights Reserved.