Principles Of Marketing (19th Edition) PDF

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

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.  Learning Objective 1 Describe the major strategies for pricing new products. Copyright © 2024 Pearson Education Ltd. All Rights Reserved. 1) New Product Pricing Strategies a) Market-skimming Pricing 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.  1) New Product Pricing Strategies b) Market-penetration Pricing 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.  2) Product Mix Pricing Strategies b) Optional c) Captive a) Product product product line pricing pricing pricing d) By- e) Product product bundle pricing pricing Copyright © 2024 Pearson Education Ltd. All Rights Reserved. 2) Product Mix Pricing Strategies a) Product Line 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. 2) Product Mix Pricing Strategies c) Captive Product Pricing Captive product pricing sets prices of products that must be used along with the main product. Product bundle pricing combines several products at a reduced price. Copyright © 2024 Pearson Education Ltd. All Rights Reserved.  By-product pricing sets a price for by-products in order to make the main product’s price more competitive. 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 take into account different types of customers and situations. Copyright © 2024 Pearson Education Ltd. All Rights Reserved.  3) Price Adjustment Strategies a) Discount and b) Segmented allowance pricing pricing c) Psychological d) Promotional pricing pricing e) Geographic f) Dynamic g) International pricing pricing pricing Copyright © 2024 Pearson Education Ltd. All Rights Reserved.  3) Price Adjustment Strategies a) Discount and Allowance Pricing Discount and allowance pricing reduces prices to reward customer responses such as making volume purchases, paying early, or promoting the product. Cash discount for paying promptly Quantity discount for buying in large volume Functional (trade) discount for selling, storing, distribution, and record keeping Seasonal discount – price reduction to buyers who buy merchandise out of season. Copyright © 2024 Pearson Education Ltd. All Rights Reserved. 3) Price Adjustment Strategies a) Discount and Allowance Pricing Trade-in allowance for turning in an old item when buying a new one Promotional allowance to reward dealers for participating in advertising or sales support programs Copyright © 2024 Pearson Education Ltd. All Rights Reserved.  3) Price Adjustment Strategies b) Segmented Pricing 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. 3) Price Adjustment Strategies b) Segmented Pricing Customer-segment pricing Product-form pricing Location-based pricing Time-based pricing Copyright © 2024 Pearson Education Ltd. All Rights Reserved. 3) Price Adjustment Strategies b) Segmented Pricing – Customer segment pricing is when different customer pay for different prices for the same product or service. – Product form pricing is when different versions of the product are priced differently but not according to differences in cost. Copyright © 2024 Pearson Education Ltd. All Rights Reserved.  3) Price Adjustment Strategies b) Segmented Pricing – Location-based pricing is when the product is sold in different geographic areas and priced differently in those areas even though the cost is the same. – Time-based pricing is when the firm varies its price by the season, month or day. Copyright © 2024 Pearson Education Ltd. All Rights Reserved. 3) Price Adjustment Strategies c) 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. Copyright © 2024 Pearson Education Ltd. All Rights Reserved.  3) Price Adjustment Strategies d) Promotional Pricing Promotional pricing is temporarily pricing products below the list price, and sometimes even below cost, to increase short-run sales. Promotional pricing: Some marketers bombard consumers with endless 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.” Keri Miksza Copyright © 2024 Pearson Education Ltd. All Rights Reserved. 3) Price Adjustment Strategies e) Geographical Pricing Geographical pricing is used for customers in different parts of the country or the world. ▪ FOB-origin pricing ▪ Uniform-delivered pricing ▪ Zone pricing ▪ Basing-point pricing ▪ Freight-absorption pricing Copyright © 2024 Pearson Education Ltd. All Rights Reserved. 3) Price Adjustment Strategies e) Geographical Pricing (1) FOB-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. Copyright © 2024 Pearson Education Ltd. All Rights Reserved. 3) Price Adjustment Strategies e) Geographical Pricing FOB is a shipment term used to indicate whether the seller or the buyer is liable for goods that are damaged or destroyed during shipping. FOB is frequently used in shipping terms where the seller quotes a price including the cost of delivering goods to the nearest port. Copyright © 2024 Pearson Education Ltd. All Rights Reserved. 3) Price Adjustment Strategies e) Geographical Pricing FOB origin means the buyer is at risk once the seller ships the product. The buyer pays the shipping cost from the factory and is responsible if the goods are damaged while in transit (insurance, freight, etc.). Copyright © 2024 Pearson Education Ltd. All Rights Reserved. 3) Price Adjustment Strategies e) Geographical Pricing (2) 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. 3) Price Adjustment Strategies e) Geographical Pricing (3) 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. Copyright © 2024 Pearson Education Ltd. All Rights Reserved.  3) Price Adjustment Strategies e) Geographical Pricing (4) 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.  3) Price Adjustment Strategies e) Geographical Pricing (5) 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.  3) Price Adjustment Strategies f) Dynamic and Internet Pricing Dynamic pricing involves adjusting prices continually to meet the characteristics and needs of individual customers and situations. Copyright © 2024 Pearson Education Ltd. All Rights Reserved. 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.  3) Price Adjustment Strategies g) International Pricing International pricing sets prices in a specific country based on many factors. 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.  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.  Learning Objective 4 Discuss the key issues related to initiating and responding to price changes. Copyright © 2024 Pearson Education Ltd. All Rights Reserved.  4) Price Changes Initiating Pricing Changes Price cuts occur due to: Excess capacity Increased market share Price increases occur due to: Cost inflation Increased demand Lack of supply Copyright © 2024 Pearson Education Ltd. All Rights Reserved.  4) Price Changes Buyer Reactions to Pricing Changes Price Price cuts increases Product is “hot” New models Company will be available greed Models are not selling well Quality issues Copyright © 2024 Pearson Education Ltd. All Rights Reserved.  4) Price Changes 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.  4) Price Changes Figure 11.1 Responding to Competitor Price Changes Copyright © 2024 Pearson Education Ltd. All Rights Reserved.  Ralf Liebhold/Shutterstock Fighter brands: Intel launched its Celeron microprocessor as a fighter brand to compete head-to-head with competitor AMD’s lower-priced processors, allowing Intel’s high-end Pentium processor line to maintain its premium prices. Copyright © 2024 Pearson Education Ltd. All Rights Reserved.  Learning Objective 5 Discuss the major public policy concerns and key pieces of legislation that affect pricing decisions. Copyright © 2024 Pearson Education Ltd. All Rights Reserved.  5) Public Policy and Pricing 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.  5) Public Policy and Pricing Pricing Within Channel Levels a) Price fixing legislation requires sellers to set prices without talking to competitors. b) 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. Copyright © 2024 Pearson Education Ltd. All Rights Reserved.  5) Public Policy and Pricing Pricing Within Channel Levels 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.  5) Public Policy and Pricing 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. a) 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.  5) Public Policy and Pricing Pricing Across Channel Levels b) Retail (or resale) price maintenance is when a manufacturer requires a dealer to charge a specific retail price for its product, which is prohibited by law. ~ Manufacturers want to control the selling price. They fixed the selling price of the products for retailers. Retailers cannot sell lower than the price fixed by the manufacturers. In addition, consumers need to pay for a higher price to cover the distribution cost for retailers. Copyright © 2024 Pearson Education Ltd. All Rights Reserved.  5) Public Policy and Pricing Pricing Across Channel Levels Pharmaceutical pricing is no easy issue. For the pharmaceutical companies, it’s more than a matter of sales and profits. In setting prices, short-term financial goals must be tempered by broader societal considerations. Copyright © 2024 Pearson Education Ltd. All Rights Reserved. For example, GSK’s heartfelt mission is “to help people do more, feel better, live longer.” Accomplishing this mission won’t come cheap. Most consumers understand that. One way or another, they know, they’ll have to pay the price. All they really ask is that they be treated fairly in the process. 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.  5) Public Policy and Pricing Pricing Across Channel Levels c) 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.