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11/14/2011
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Principles of Marketing
Chapter 21
SETTING PRICES
Establishing Prices
1• Development of Pricing Objectives
2• Assessment of target market’s evaluation of price
3• Evaluation of competitor’s prices
4• Selection of a basis for pricing
5• Selection of a pricing strategy
6• Determination of a specific price
Price Objectives
SurvivalSurvival ProfitProfit ROIROI
Market Market ShareShare
Cash FlowCash FlowStatus Status QuoQuo
Quality Quality PerceptionPerception
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Markets’ view of price
VALUEVALUE
Target Target marketmarket
Evaluation of competitor strategies
� Easiest for consumer products-
� Watch ads
� Secret shoppers
� B2B
� More difficult- especially in competitive situations
� Includes between intermediaries
Basis for pricing
Pricing
Cost- Based
Cost-plusMarkup Pricing
% of cost% of selling
price
Demand-Based
Competition-Based
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Determining a pricing strategy
Differential
New-Product
Product-Line
Psychological
Professional
Promotional
DifferentialDifferential
� Negotiated� Bargaining – Haggling (used internationally)� Vehicle or large equipment sales
� Secondary-market pricing� Movie tickets, restaurants, personal care� Seniors, children, “first 50”, time period
� Periodic discounting
� Random discounting� Specific items (often to lure into store)� Tensile- use of broad statement often using percentages
NewNew--productproduct
• Highest price possible
• Faster return on investmentSkimming
• Price is not a decision factor
• Substitutes are prevalentNeutral
• Want to gain market share
• Lowest price possible based on costsPenetration
Impacted by costs, customers and competitionImpacted by costs, customers and competition
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Product LineProduct Line
� Captive pricing
� Premium pricing
� Bait pricing
� Advertise lower quality product at low price and then consumer purchases a better quality product for more.
� Price lining
PsychologicalPsychological PricingPricing
� Reference pricing
� Comparison to more expensive offering
� Bundle pricing
� Value meals at “fast-food” restaurants
� Multiple- unit pricing
� Everyday low prices
� Odd-even pricing
� Customary pricing
� Prestige pricing
ProfessionalProfessional PricingPricing
� “Ethical Basis”� Attorney fees
� Consultants
� Medical
� Architects
� Web-designers
� Various methods� By the hour
� For a project
� Contingency percentage
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