Principles of Marketing Chapter 6 Pricing PDF

Principles of Marketing Nineteenth Edition Chapter 6 Pricing: Understanding and Capturing Customer Value Copyright © 2024, 2021, 2018 Pearson Education, Inc. All Rights Reserv...

Principles of Marketing Nineteenth Edition Chapter 6 Pricing: Understanding and Capturing Customer Value Copyright © 2024, 2021, 2018 Pearson Education, Inc. All Rights Reserved Learning Objectives 10.1 Answer the question “What is price?” and discuss the importance of pricing in today’s fast-changing environment. 10.2 Define price, identify the major pricing strategies, and discuss the importance of understanding customer- value perceptions, company costs, and competitor strategies when setting prices. 10.3 Identify and discuss the other important external and internal factors affecting a firm’s pricing decisions. Copyright © 2024, 2021, 2018 Pearson Education, Inc. All Rights Reserved Learning Objective 1 Answer the question “What is price?” and discuss the importance of pricing in today’s fast-changing environment. Copyright © 2024, 2021, 2018 Pearson Education, Inc. All Rights Reserved What Is a Price? Price is the amount of money charged for a product or service, or the sum of all the values that customers exchange for the benefits of having or using the product or service. Pricing: No matter what the state of the economy, companies should sell value, not price. magicoven/Shutterstock Copyright © 2024, 2021, 2018 Pearson Education, Inc. All Rights Reserved Learning Objective 2 Define price, identify the major pricing strategies, and discuss the importance of understanding customer-value perceptions, company costs, and competitor strategies when setting prices. Copyright © 2024, 2021, 2018 Pearson Education, Inc. All Rights Reserved Major Pricing Strategies (1 of 17) Figure 10.1 Considerations in Setting Price Copyright © 2024, 2021, 2018 Pearson Education, Inc. All Rights Reserved Major Pricing Strategies (2 of 17) Customer Value-Based Pricing Value-based pricing uses the buyers’ perceptions of value rather than the seller’s cost. Value-based pricing is customer driven. Cost-based pricing is product driven. Price is set to match perceived value. Copyright © 2024, 2021, 2018 Pearson Education, Inc. All Rights Reserved Major Pricing Strategies (3 of 17) Figure 10.2 Value-Based Pricing versus Cost-Based Pricing Copyright © 2024, 2021, 2018 Pearson Education, Inc. All Rights Reserved Major Pricing Strategies (4 of 17) Customer Value-Based Pricing Good-value pricing is offering just the right combination of quality and good service at a fair price. Customer value–based pricing: A Steinway piano— any Steinway piano—costs a lot. But to a Steinway customer, it’s a small price to pay for the value of owning one. © Westend61 GmbH/Alamy Stock Photo Copyright © 2024, 2021, 2018 Pearson Education, Inc. All Rights Reserved Major Pricing Strategies (5 of 17) Customer Value-Based Pricing Everyday low pricing (EDLP) involves charging a constant everyday low price with few or no temporary price discounts. Copyright © 2024, 2021, 2018 Pearson Education, Inc. All Rights Reserved Major Pricing Strategies (6 of 17) Customer Value-Based Pricing High-low pricing involves charging higher prices on an everyday basis but running frequent promotions to lower prices temporarily on selected items. Copyright © 2024, 2021, 2018 Pearson Education, Inc. All Rights Reserved Major Pricing Strategies (7 of 17) Customer Value-Based Pricing Value-added pricing attaches value-added features and services to differentiate a company’s offers and thus their higher prices. The Porsche Drive subscription program promises “Dreams on demand—a fleet of Porsches at your fingertips.” That makes the value well worth the price for the group of Porsche enthusiasts who sign up. North Monaco/Shutterstock Copyright © 2024, 2021, 2018 Pearson Education, Inc. All Rights Reserved Major Pricing Strategies (8 of 17) Cost-Based Pricing Cost-based pricing sets prices based on the costs for producing, distributing, and selling the product plus a fair rate of return for effort and risk. Copyright © 2024, 2021, 2018 Pearson Education, Inc. All Rights Reserved Major Pricing Strategies (14 of 17) Cost-Based Pricing Cost-plus pricing adds a standard markup to the cost of the product. Benefits – Sellers are certain about costs. – Price competition is minimized. – Buyers feel it is fair. Disadvantages – Ignores demand and competitor prices Copyright © 2024, 2021, 2018 Pearson Education, Inc. All Rights Reserved Major Pricing Strategies (15 of 17) Cost-Based Pricing Break-even pricing (target return pricing) is setting price to break even on costs or to make a target return. Figure 10.5 Break-Even Chart for Determining Target Return Price and Break-Even Volume Copyright © 2024, 2021, 2018 Pearson Education, Inc. All Rights Reserved Major Pricing Strategies (17 of 17) Competition-Based Pricing Competition-based pricing is setting prices based on competitors’ strategies, costs, prices, and market offerings. Pricing versus competitors: Caterpillar dominates the heavy equipment industry despite charging premium prices. Customers believe that Caterpillar gives them a lot more value for the price over the lifetime of its Kristoffer Tripplaar/Alamy Stock Photo machines. Copyright © 2024, 2021, 2018 Pearson Education, Inc. All Rights Reserved Learning Objective 3 Identify and discuss the other important external and internal factors affecting a firm’s pricing decisions. Copyright © 2024, 2021, 2018 Pearson Education, Inc. All Rights Reserved Other Internal and External Considerations Affecting Price Decisions (1 of 8) 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. Brands might build their marketing strategies around premium pricing or affordable pricing. Consumer electronics maker Visio’s aim is “to make high-quality technology and content affordable to everyone.” Andrey_Popov/Shutterstock Copyright © 2024, 2021, 2018 Pearson Education, Inc. All Rights Reserved Other Internal and External Considerations Affecting Price Decisions (2 of 8) Organizational Considerations Who should set prices? Who can influence prices? Copyright © 2024, 2021, 2018 Pearson Education, Inc. All Rights Reserved Other Internal and External Considerations Affecting Price Decisions (3 of 8) The Market and Demand Before setting prices, the marketer must understand the relationship between price and demand for its products. Pricing under monopolistic competition: Bose sets its premium audio products apart not by price but by the power of its brand and the host of differentiating features. Jonathan Weiss/Shutterstock Copyright © 2024, 2021, 2018 Pearson Education, Inc. All Rights Reserved Other Internal and External Considerations Affecting Price Decisions (4 of 8) The Market and Demand Pricing In Different Types of Markets Pure competition Monopolistic competition Oligopolistic competition Pure monopoly Copyright © 2024, 2021, 2018 Pearson Education, Inc. All Rights Reserved Other Internal and External Considerations Affecting Price Decisions (5 of 8) The Market Demand Analyzing the Price-Demand Relationship The demand curve shows the number of units the market will buy in a given period at different prices Demand and price are inversely related Higher price = lower demand Copyright © 2024, 2021, 2018 Pearson Education, Inc. All Rights Reserved Other Internal and External Considerations Affecting Price Decisions (6 of 8) Figure 10.6 Demand Curve Copyright © 2024, 2021, 2018 Pearson Education, Inc. All Rights Reserved Other Internal and External Considerations Affecting Price Decisions (7 of 8) The Market and Demand Price Elasticity of Demand Price elasticity is a measure of the sensitivity of demand to changes in price. Inelastic demand is when demand hardly changes with a small change in price. Elastic demand is when demand changes greatly with a small change in price. Copyright © 2024, 2021, 2018 Pearson Education, Inc. All Rights Reserved Other Internal and External Considerations Affecting Price Decisions (8 of 8) The Economy and Other External Factors Economic conditions Reseller’s response to price Government Social concerns Pricing and the economy: To meet the needs of cost-conscious customers with tighter budgets, Target introduced lower-priced store brands such as Up & Up. “Beautiful things don’t have to be spendy.” Gary Armstrong Copyright © 2024, 2021, 2018 Pearson Education, Inc. All Rights Reserved Copyright This work is protected by United States copyright laws and is provided solely for the use of instructors in teaching their courses and assessing student learning. Dissemination or sale of any part of this work (including on the World Wide Web) will destroy the integrity of the work and is not permitted. The work and materials from it should never be made available to students except by instructors using the accompanying text in their classes. All recipients of this work are expected to abide by these restrictions and to honor the intended pedagogical purposes and the needs of other instructors who rely on these materials. Copyright © 2024, 2021, 2018 Pearson Education, Inc. All Rights Reserved