Principles Of Marketing - Arab World Edition PDF

Principles of Marketing, Arab World Edition Philip Kotler, Gary Armstrong, Anwar Habib, Ahmed Tolba Presentation prepared by Annelie Moukaddem Baalbaki CHAPTER TEN Pricing L.S...

Principles of Marketing, Arab World Edition Philip Kotler, Gary Armstrong, Anwar Habib, Ahmed Tolba Presentation prepared by Annelie Moukaddem Baalbaki CHAPTER TEN Pricing L.Sarah Alrabeeah Ch 10 -# Copyright © 2011 Pearson Education  Chapter Learning Outcomes Topic Outline 10.1 What Is a Price? 10.2 Customer Perceptions of Value 10.3 Company and Product Costs 10.4 Other Internal and External Considerations Affecting Price Decisions 10.5 New Product Pricing strategies 10.6 Product Mix Pricing Strategies 10.7 Price-Adjustment Strategies 10.8 Price Changes Ch 10 -1 Copyright © 2011 Pearson Education  What Is a Price? Price Price is the amount of money charged for a product or service. It is the sum of all the values that consumers give up in order to gain the benefits of having or using a product or service. Price is the only element in the marketing mix that produces revenue; all other elements represent costs. Ch 10 -2 Copyright © 2011 Pearson Education  Factors to Consider When Setting Prices Ch 10 -3 Copyright © 2011 Pearson Education  Customer Perceptions of Value Customer oriented prices involves understanding how much value consumers place on the benefits they receive from the product and setting a price that captures that value. Ch 10 -4 Copyright © 2011 Pearson Education  Customer Perceptions of Value Value –Based Pricing Value-based pricing uses the buyers’ perceptions of value, not the sellers cost, as the key to pricing. Price is considered before the marketing program is set. 1. Value-based pricing is customer driven ○ Good-Value Pricing ○ Value-Added Pricing 2. Cost-based pricing is product driven Ch 10 -5 Copyright © 2011 Pearson Education  Customer Perceptions of Value Ch 10 -6 Copyright © 2011 Pearson Education  Customer Perceptions of Value 1- Value-Based Pricing(Good-value pricing , Value- Added Pricing): A. Good-value pricing offers the right combination of quality and good service to fair price. Existing brands are being redesigned to offer more quality for a given price or the same quality for less price. Ch 10 -8 Copyright © 2011 Pearson Education  Customer Perceptions of Value Value-Based Pricing: A:Good-Value Pricing: Everyday low pricing (EDLP) involves charging a constant everyday low price with few or no temporary price discounts. High-low pricing involves charging higher prices on an everyday basis but running frequent promotions to lower prices temporarily on selected items. Ch 10 -9 Copyright © 2011 Pearson Education  Customer Perceptions of Value Value-Based Pricing: B. Value-Added Pricing Value-added pricing attaches value-added features and services to differentiate offers, support higher prices, and build pricing power. Pricing power is the ability to escape price competition and to justify higher prices and margins without losing market share. Ch 10 - Copyright © 2011 Pearson Education 11  Company and Product Costs 2- Cost-Based Pricing Cost-based pricing involves setting prices based on the costs for producing, distributing, and selling the product plus a fair rate of return for its effort and risk. Cost-based pricing adds a standard markup to the cost of the product. Ch 10 -12 Copyright © 2011 Pearson Education  Company and Product Costs Types of costs: 1- Fixed costs are the costs that do not vary with production or sales level. Rent Heat Interest Executive salaries Ch 10 -13 Copyright © 2011 Pearson Education  Company and Product Costs Types of Costs: 2- Variable costs are the costs that vary with the level of production. Packaging Raw materials 3- Total costs are the sum of the fixed and variable costs for any given level of production. Average cost is the cost associated with a given level of output. Ch 10 -14 Copyright © 2011 Pearson Education  Factors to Consider When Setting Prices Ch 10 - Copyright © 2011 Pearson Education 15  Other Internal and External Considerations Affecting Price Decisions Considerations Customer perceptions of value set the upper limit for prices, and costs set the lower limit. Companies must consider internal and external factors when setting prices. Ch 10 -16 Copyright © 2011 Pearson Education  Other Internal and External Considerations Affecting Price Decisions Overall Marketing Strategy, Objectives, and Mix Target costing starts with an ideal selling price based on consumer value considerations and then targets costs that will ensure that the price is met. Ch 10 -17 Copyright © 2011 Pearson Education  Other Internal and External Considerations Affecting Price Decisions Organizational considerations Organizational considerations include: Who should set the price Who can influence the prices Ch 10 -18 Copyright © 2011 Pearson Education  Other Internal and External Considerations Affecting Price Decisions The Market and Demand Before setting prices, the marketer must understand the relationship between price and demand for its products. Pricing in Different Types of Markets Analyzing the Price-Demand Relationship Price Elasticity of Demand Ch 10 -19 Copyright © 2011 Pearson Education  Other Internal and External Considerations Competitor's Strategies Competitors’ Strategies and Prices Comparison of offering in terms of customer value Strength of competitors Competition pricing strategies Customer price sensitivity Ch 10 -20 Copyright © 2011 Pearson Education  Other Internal and External Consideration Affecting Price Decisions Other External Factors Ch 10 -21 Copyright © 2011 Pearson Education  New-Product Pricing Strategies Ch 10 -22 Copyright © 2011 Pearson Education  New-Product Pricing Strategies Market-skimming pricing is a strategy with 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 Costs of producing the product in small volume should not cancel the advantage of higher prices Competitors should not be able to enter the market easily Ch 10 -23 Copyright © 2011 Pearson Education  New-Product Pricing Strategies Market-penetration pricing sets a low initial price in order to penetrate the market quickly and deeply to attract a large number of buyers quickly to gain market share. Price sensitive market Inverse relationship of production and distribution cost to sales growth Low prices must keep competition out of the market Ch 10 -24 Copyright © 2011 Pearson Education  Product Mix Pricing Strategies Ch 10 -26 Copyright © 2011 Pearson Education  Product Mix Pricing Strategies Product line pricing takes into account the cost differences between products in the line, customer evaluation of their features, and competitors’ prices. Optional-product pricing takes into account optional or accessory products along with the main product. Ch 10 -27 Copyright © 2011 Pearson Education  Product Mix Pricing Strategies Captive-product pricing involves products that must be used along with the main product. For Services, it is called Two-part pricing. Fixed fee Variable usage fee Ch 10 -28 Copyright © 2011 Pearson Education  Price Mix Pricing Strategies By-product pricing refers to products with little or no value produced as a result of the main product. Producers will seek little or no profit other than the cost to cover storage and delivery. Product bundle pricing combines several products at a reduced price. Ch 10 -29 Copyright © 2011 Pearson Education  Price-Adjustment Strategies Ch 10 -30 Copyright © 2011 Pearson Education  Price-Adjustment Strategies 1-Discount and allowance pricing reduces prices to reward customer responses such as paying early or promoting the product. Discounts: cash, quantity, functional, seasonal Ch 10 -31 Copyright © 2011 Pearson Education  Price-Adjustment Strategies 2- Segmented pricing is used when a company sells a product at two or more prices even though the difference is not based on cost. Customer Product form Location Ch 10 -32 Copyright © 2011 Pearson Education  Price-Adjustment Strategies For Segmented Pricing to be effective: Market must be segmentable Segments must show different degrees of demand Watching the market cannot exceed the extra revenue obtained from the price difference Must be legal Ch 10 -33 Copyright © 2011 Pearson Education  Price-Adjustment Strategies 3- Psychological pricing occurs when sellers consider the psychology of prices and not simply the economics. Reference prices are prices that buyers carry in their minds and refer to when looking at a given product. Noting current prices Remembering past prices Assessing the buying situations Ch 10 -34 Copyright © 2011 Pearson Education  Price-Adjustment Strategies 4- Promotional pricing is when prices are temporarily priced below list price or cost to increase demand. Loss leaders Special event pricing Cash rebates Low-interest financing Longer warrantees Free maintenance Ch 10 -35 Copyright © 2011 Pearson Education  Price-Adjustment Strategies Risks of promotional pricing If it is used too frequently and copied by competitors, it can create “deal-prone” customers who will wait for promotions and avoid buying at regular price. Creates price wars Ch 10 -36 Copyright © 2011 Pearson Education  Price-Adjustment Strategies Geographic Pricing 5- Geographical pricing is used for customers in different parts of the country or the world. a) FOB-origin pricing b) Uniformed-delivered pricing c) Zone pricing d) Basing-point pricing e) Freight-absorption pricing Ch 10 -37 Copyright © 2011 Pearson Education  Price-Adjustment Strategies Geographic Pricing a) FOB-origin (free on board) pricing means that the goods are delivered to the carrier and the title and responsibility passes to the customer. b) Uniform-delivered pricing means the company charges the same price plus freight to all customers, regardless of location. Same price Ch 10 -38 Copyright © 2011 Pearson Education  Price-Adjustment Strategies Geographic Pricing c) Zone pricing means that the company sets up two or more zones where customers within a given zone pay a single total price. d) Basing-point pricing means the seller designates some city as a basing point and charges all customers the freight cost from that city to the customer. e) Freight-absorption pricing means the seller absorbs all or part of the actual freight charge as an incentive to attract business in competitive markets. Ch 10 -39 Copyright © 2011 Pearson Education  Price-Adjustment Strategies 6- Dynamic Pricing Dynamic pricing is when prices are adjusted continually to meet the characteristics and needs of the individual customer and situations. Ch 10 -40 Copyright © 2011 Pearson Education  Price-Adjustment Strategies 7- International pricing is when prices are set in a specific country based on country-specific factors. Economic conditions Competitive conditions Laws and regulations Infrastructure Company marketing objective Ch 10 -41 Copyright © 2011 Pearson Education  Price Changes Initiating Pricing Changes Ch 10 -42 Copyright © 2011 Pearson Education  Price Changes Buyer Reactions to Pricing Changes Ch 10 -43 Copyright © 2011 Pearson Education  Price Changes Competitor Reactions to Pricing Changes Competitors usually react when: The number of firms involved is small The product is uniform The buyers are well informed about products and prices Ch 10 -44 Copyright © 2011 Pearson Education  Price Changes Responding to Price Changes Questions Why did the competitor change the price? Is the price cut permanent or temporary? What is the effect on market share and profits? Will competitors respond? Ch 10 -45 Copyright © 2011 Pearson Education  Price Changes Responding to Price Changes Solutions 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 Ch 10 -46 Copyright © 2011 Pearson Education  Price Changes Ch 10 -47 Copyright © 2011 Pearson Education