Marketing Management 14th Ed Chapter 14

7/31/2019 Marketing Management 14th Ed Chapter 14

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Chapter 14


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Downward price pressure from a changing economicenvironment coincided with some longer term trends inthe technological environment. For some years now, theInternet has been changing how buyers and sellers

interact. how the Internet buyers to discriminate between sellers

Get instant price comparisons from thousands of vendors.

Name their price and have it met.

Get products free allows sellers to discriminate between buyers

Monitor customer behavior and tailor offers to individuals.

Give certain customers access to special prices.

Negotiate prices in online auctions and exchanges or even inperson.


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Purchase decisions are based on howconsumers perceive prices and what theyconsider the current actual price to benoton the marketers stated price.

Customers may have a lower price thresholdbelow which prices signal inferior or

unacceptable quality, as well as an upperprice threshold above which prices areprohibitive and the product appears notworth the money.


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REFERENCE PRICES - comparing an observed price

to an internal reference price they remember or anexternal frame of reference such as a posted

regular retail price.


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PRICE-QUALITY INFERENCES -Manyconsumers use price as an indicator of quality.

PRICE ENDINGS - Many sellers believe pricesshould end in an odd number. Customers tend to process prices left-to-right

rather than by rounding.

9 endings is that they suggest a discount orbargain

Pricing cues are more influential when consumersprice knowledge is poor.


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1. Selecting the Pricing Objective - The companyfirst decides where it wants to position itsmarket offering. SURVIVAL - Companies pursue survival as their major

objective if they are plagued with overcapacity,intense competition, or changing consumer wants.

MAXIMUM CURRENT PROFIT - Many companies tryto set a price that will maximize current profits. setthe price as low as possible and win a large market

share MAXIMUM MARKET SHARE - Some companies want

to maximize their market share. They believe a highersales volume will lead to lower unit costs and higherlong-run profit.


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MAXIMUM MARKET SKIMMING - in which pricesstart high and slowly drop over time.

PRODUCT-QUALITY LEADERSHIP - luxuriesproducts or services characterized by high levels

of perceived quality, taste, and status with a pricejust high enough not to be out of consumersreach.

OTHER OBJECTIVES - Nonprofit and public

organizations.


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Determining Demand -Each price will lead to a different levelof demand and have a different impact on a companysmarketing objectives.

PRICE SENSITIVITY - shows the markets probable purchase

quantity at alternative prices. Generally speaking, customers are less price sensitive to low-cost

items or items they buy infrequently.


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ESTIMATING DEMAND CURVES

Surveys - can explore how many units consumers wouldbuy at different proposed prices.

Price experiments - can vary the prices of differentproducts in a store or charge differentprices for the sameproduct in similar territories to see how the changeaffects sales.

Statistical analysis - of past prices, quantities sold, andother factors can reveal their relationships.


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PRICE ELASTICITY OF DEMAND - Marketers needto know how responsive, or elastic, demand is to achange in price.

3. Estimating Costs - Costs set the price floor.The company wants to charge a price thatcovers its cost of producing, distributing,and selling the product, including a fairreturn for its effort and risk.


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Variable costs - vary directly with the level ofproduction.

Total costs - consist of the sum of the fixedand variable costs for any given level ofproduction.

Average cost - is the cost per unit at thatlevel of production; it equals total costsdivided by production.


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ACCUMULATED PRODUCTION

TARGET COSTING - Costs change with production

scale and experience. They can also change as a

result of a concentrated effort by designers,engineers, and purchasing agents to reduce them

through target costing

decline in the average cost with accumulated productionexperience is called the experience curve or learningcurve.


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4. Analyzing Competitors Costs, Prices, and Offers -

the firm must take competitors costs, prices, andpossible price reactions into account.

5. Selecting a Pricing Method MARKUP PRICING - The most elementary pricing method

is to add a standard markup to the products cost.


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TARGET-RETURN PRICING - the firm determines the pricethat yields its target rate of return on investment.

PERCEIVED-VALUE PRICING - is made up of a host of inputs,such as the buyers image of the product performance, thechannel deliverables, the warranty quality, customersupport, and softer attributes such as the suppliersreputation, trustworthiness, and esteem.


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VALUE PRICING - charging a fairly low price for ahigh-quality offering

important type of value pricing is everyday low pricing

(EDLP). A retailer that holds to an EDLP pricing policycharges a constant low price with little or no pricepromotions and special sales.

high-low pricing, the retailer charges higher prices on

an everyday basis but runs frequent promotions withprices temporarily lower than the EDLP level.60


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GOING-RATE PRICING - the firm bases its pricelargely on competitors prices.

AUCTION-TYPE PRICING

English auctions (ascending bids) have one seller andmany buyers.

Dutch auctions (descending bids)feature one seller andmany buyers, or one buyer and many sellers.

Sealed-bid auctions let would-be suppliers submit onlyone bid; they cannot know the otherbids.


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6. Selecting the Final Price IMPACT OF OTHER MARKETING ACTIVITIES - The final price must

take into account the brands quality and advertising relative to the

competition. COMPANY PRICING POLICIES - The price must be consistent with

company pricing policies.

GAIN-AND-RISK-SHARING PRICING - Buyers may resist acceptinga sellers proposal because of a high perceived level of risk.

IMPACT OF PRICE ON OTHER PARTIES


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Form of countertrade: Barter- The buyer and seller directly exchange goods,

with no money and no third party involved.

Compensation deal- The seller receives some percentageof the payment in cash and the rest in products.

Buyback arrangement - The seller sells a plant,equipment, or technology to another country and agreesto accept as partial payment products manufactured with

the supplied equipment. Offset - The seller receives full payment in cash but agrees

to spend a substantial amount of the money in thatcountry within a stated time period.


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Loss-leader pricing -drop the price on well known brands to

stimulate additional store traffic. Special event pricing -Sellers will establish special prices in certain

seasons to draw in more customers. Special customer pricing - Sellers will offer special prices exclusively

to certain customers. Cash rebates - companies offer cash rebates to encourage

purchase of the manufacturers products within a specified timeperiod.

Low-interest financing - Instead of cutting its price, the companycan offer customers low interest financing.

Longer payment termsstretch loans over longer periods andthus lower the monthly payments.

Warranties and service contracts - Companies can promote salesby adding a free or low-costwarranty or service contract.

Psychological discounting - This strategy sets an artificially highprice and then offers the product at substantial savings;


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Companies often adjust their basic price toaccommodate differences in customers,

products, locations and etc. Price discrimination - occurs when a company

sells a product or service at two or moreprices that do not reflect a proportionaldifference in costs.


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Customer-segment pricing - Different customer groups paydifferent prices for the same product or service.

Product-form pricing - Different versions of the product arepriced differently, but notproportionately to their costs.

Image pricing - Some companies price the same product at

two different levels based on image differences Channel pricing - price depends on what channel the

consumer purchases an item. Location pricing - The same product is priced differently at

different locations even though

the cost of offering it at each location is the same. Time pricing - Prices are varied by season, day, or hour. Yield pricing - they offer discounted but limited early

purchases, higher-priced late purchases, and the lowest rates on unsold inventory just before it expires.


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Initiating Price Cuts

circumstances might lead a firm to cut prices :

excess plant capacity: The firm needs additionalbusiness and cannot generate it through increasedsales effort, product improvement, or other

measures.

drive to dominate the market through lower costs.


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Low-quality trap - Consumers assume quality islow.

Fragile-market-share trap -A low price buys

market share but not market loyalty. The samecustomers will shift to any lower-priced firm thatcomes along.

Shallow-pockets trap - Higher-priced competitorsmatch the lower prices but have longerstayingpower because of deeper cash reserves.

Price-war trap - Competitors respond by loweringtheir prices even more, triggering a price war


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Factors leading to price increase:

cost inflation - Rising costs unmatched by

productivity gains squeeze profit margins andlead companies to regular rounds of priceincreases.

To anticipation further inflation or government

price controls overdemand


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Delayed quotation pricing - The company does not seta final price until the product is finishedor delivered.

Escalator clauses - The company requires the customerto pay todays price and all or part ofany inflation

increase that takes place before delivery. Unbundling - The company maintains its price but

removes or prices separately one or more elements thatwere part of the former offer, such as free delivery or

installation. Reduction of discounts - The company instructs its

sales force not to offer its normal cash andquantitydiscounts.


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For consideration:(1) Why did the competitor change the price? To

steal the market, to utilize excess capacity, to

meet changing cost conditions, or to lead anindustry-wide price change?(2) Does the competitor plan to make the price

change temporary or permanent?(3) What will happen to the companys market

share and profits if it does not respond? Areother companies going to respond?

(4) What are the competitors and other firmsresponses likely to be to each possible reaction?


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Marketing Management 14th Ed Chapter 14