CHAPTER 8 – Determining Demand – Customer
Perception of Price
 Customer benefits fall into functional (specific
benefits), operational (reliability and durability),
financial (payback period), personal, and relational
categories.
 Value-in-use pricing means the vendor captures
some of the benefits realized by the customer.
 The definition of value-in-use by the customer
changes as the customer‘s goals change. They
find two types of goals – preventative (solving
problems) and promotional (increasing
organizational productivity).
 Price Sensitivity Categories - customer economics,
search, usage, and competition.
 Pricing Sensitivity will decline if: customer has to
resell and if the item is of extreme importance to the
operations of customer firm
 Pricing sensitivity will increase if: information search
is easy, inexpensive and if switching cost are low
 Switching costs: all the costs associated with
changing from one particular product to another.
 Activity based costing (ABC): what costs should
be assigned to particular product lines and
customers.
 Learning curve (or experience curve) theory:
costs decline rapidly with each doubling of output of
a particular product. Comes from 3 major sources –
Learning (practice and skill), Technological
improvement (product changes that improve
yield), and Economies of Scale (increase
efficiency from larger operations).
CHAPTER 9 – PRICE CHANGES
 Situations Leading to price cut – Excess
Capacity, falling market share due to
competition, to dominate the market thru lower
costs
 Situations leading to price increase – cost
inflation, over-demand
 A brand‘s price and image are often closely linked. A
price change, especially a drop in price, can
adversely affect how consumers view the brand.
 like the customer, the competitor can interpret a
company price cut in many ways
 If the company decides that effective action can and
should be taken, it might make any of four
responses.
o Reduce price: leader drops its price to the
competitor‘s price.
o Raise perceived quality: The firm may find it
cheaper to maintain price and spend money
to improve its perceived quality than to cut
price and operate at a lower margin.
o Improve quality and increase price: The
higher quality justifies the higher price,
which in turn preserves the company‘s
higher margins
o Launch low-price „fighting brand‟: add lower-
price items to the line or to create a separate
lower-price brand.
TOPIC 10 – IDENTIFYING PRICING CONSTRAINTS
 The number of potential buyers for the product
class (cars), product group (family sedans) and
specific brand (Toyota Camry V6) clearly affects
the price a seller can charge.
 The newer a product and the earlier it is in its life
cycle, the higher is the price that can usually be
charged.
 Marketers needs to ensure that firms in their
channels of distribution make an adequate profit.
 Ethical constraints:
o Ethical Level 1: well-functioning,
competitive market economies, requires
that all transactions be voluntary
o Ethical level 2: more restrictive
standard, condemning even voluntary
transactions by those who would profit
from unequal information about the
exchange.
o Ethical level 3: more stringent criterion:
sellers earn no more than a fair profit
from sales of necessities for which
buyers have only limited alternatives.
(Having price controls)
o Ethical level 4: extends the criteria of
ethical level three to all products, even
those with many substitutes and not
usually thought of as necessities. Profit
is morally justifiable only when
everyone, even the most needy, benefits
from it.
o Ethical Level 5: everyone is obliged to
share good fortune to those needy