What’s Happening?  http

://www.youtube.com/watch?feature=player_embedded&v=9mIBKifOOQQ

Pricing Strategies

Chapter 11

Price Defined The amount of money charged for a

product or service that consumers exchange for the benefits of having or using the product or service. Most flexible element in marketing mix Major impact on store/product/service

image

What else is price? Value

Product powerto stimulateexchange

Barter Money-less

exchange

Other Terms: Rent Fee Donation Toll Honorariu

m Tuition

Price as a Marketing Mix variable

Price Competition versus Nonprice Competition

John Deere uses nonprice competition by emphasizing quality and workmanship

The Fundamentals of Pricing Strategy

1. Set pricing objectives2. Establish importance to target

market3. Understand demand4. Understand costs5. Determine strategy

$d

s TM₤

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Product objectives

Distribution objectives

Promotion objectives

Price objectives

Marketingobjectives

Companyobjectives

Actual prices

Pricingstrategiesandpolicies

Relating Pricing objectives to Marketing

objectives

Price Elasticity of Demand

Inelastic demand: when a percentage change in price causes a much smaller percentage change in demand Products that have few, if any substitutes Consumption is necessary Pricing strategy is to raise prices to earn

more profits

Price elasticity: a measure of the sensitivity of demand to changes in price

Elastic demand: when a percentage change in price causes a much larger percentage change in demand Products that have many substitutes Consumption is discretionary Pricing strategy normally to lower price to sell

more

Price Elasticity of Demand

Demand Curve

0

2

4

6

8

10

12

0 5 10 15 20 25 30 35 40

Quantity demanded

Pric

e

P2

P11

Q21

Q21

Q1 Q1

Price Adjustments Cash Discounts Trade Discounts Quantity Discounts Seasonal Discounts Chain Discounts Promotional

AllowancesSeasonal discounts are a common marketing strategy to encourage purchases

Pricing StrategiesDifferential Pricing strategies Variable pricing Segment pricing Skimming Periodic discounting Random discounting

Competitive Pricing strategies Meeting the competition Below the competition Price leadership Following the leader Penetration pricing

Pricing StrategiesProduct-line

Pricing strategies

Captive pricing Leader pricing Bait pricing Price lining Price bundling Multiple-unit

pricing

Psychological and image Pricing strategies

Reference pricing Odd and even pricing Prestige pricing

Marketing Math

1.Markup on Selling Price:

= % markup on selling priceAmount added on

----------------------------Selling price

Establishing the Exact price

2. Markup on Cost:

= % markup on costAmount added on

----------------------------Cost

Manufacturer

Cost $20.0020% markup$ 5.00Selling price$25.00

Wholesaler

Cost $25.0015% markup$ 4.41Selling price$29.41

Retailer

Cost $29.4141% markup$20.59Selling price$50.00

Markup through a channel of distribution