Developing Pricing Strategies and

Programs
• Although the non-price factors have
become quite important in the last few
decades, price still remains an important
factor in determining sales and profitability.
 A Changing Pricing Environment
Buyers Options:

• Get instant price comparisons from thousands

of vendors.

• Name their price and have it met

• Get products free

 A Changing Pricing Environment
Sellers options:
• Monitor customer behavior and tailor
offers to individuals.

• Give certain customers access to special

prices.

Both buyers and sellers can:

• Negotiate prices in online auctions and
exchanges.
 How Companies Price

• Individual

• Division/ Department
Consumer Psychology and Pricing
• Reference Prices (Fair price, Typical price,
Last price paid, Upper-Bound Price,
Lower-Bound Price, Competitor price,
Expected future price, Usual Discounted
price.

• Price-Quality Inferences

• Price Cues: (2599,Free,Off,Hurry)

 Steps in Setting Price
Select the price objective

Determine demand

Estimate costs

Analyze competitor price mix

Select pricing method

Select final price

 Setting the Price
Selecting the Pricing Objective:
• Survival ( Long run how to add value)

• Maximum Current Profit

• Maximum Market Share

• Maximum Market Skimming (customer, profitable, few

competitors, superior image).

• Product-Quality Leadership
Step 2: Determining Demand

Price Sensitivity

Estimating
Surveys, Price Experiments, Statistical
Demand Curves Analysis

Price Elasticity
of Demand
Table 14.3 Factors Leading to Less
Price Sensitivity
• The product is more distinctive
• Buyers are less aware of substitutes
• Buyers cannot easily compare the quality of substitutes
• The expenditure is a smaller part of buyer’s total income
• The expenditure is small compared to the total cost of
the end product
• Part of the cost is paid by another party
• The product is used with previously purchased assets
• The product is assumed to have high quality and
prestige
• Buyers cannot store the product
Figure 14.2 Inelastic
and Elastic Demand
Step 3: Estimating Costs

Types of Costs
Accumulated
Production
Activity-Based
Cost Accounting
Target Costing
Cost Terms and Production
• Fixed costs
• Variable costs
• Total costs
• Average cost
• Cost at different
levels of
production
Figure 14.4 Cost per Unit as a
Function of Accumulated
Production
• Nano for target costing
 Step 4
Analyzing Competitors’ Cost, Prices, and
Offers
Step 5: Selecting a Pricing
Method
• Markup pricing
• Target-return pricing
• Perceived-value
pricing
• Value pricing
• Going-rate pricing
• Auction-type pricing
Figure 14.6 Break-Even Chart
Auction-Type Pricing

English auctions

Dutch auctions

Sealed-bid auctions
 Step 6: Selecting the Final Price
• Impact of other
marketing activities
• Company pricing
policies
• Gain-and-risk sharing
pricing
• Impact of price on
other parties
Price-Adaptation Strategies

Geographical Pricing

Discounts/Allowances

Promotional Pricing

Differentiated Pricing
 Price-Adaptation Strategies
Countertrade Discounts/ Allowances
• Barter • Cash discount
• Compensation deal • Quantity discount
• Buyback arrangement • Functional discount
• Offset • Seasonal discount
• Allowance
Promotional Pricing Tactics
• Loss-leader pricing
• Special-event pricing
• Cash rebates
• Low-interest financing
• Longer payment terms
• Warranties and service
contracts
• Psychological
discounting
Differentiated Pricing
• Customer-segment
pricing
• Product-form pricing
• Image pricing
• Channel pricing
• Location pricing
• Time pricing
• Yield pricing
 Initiating and Responding to Price
Change
Initiating Price Cuts
• Low quality trap

• Fragile Market trap

• Shallow pockets trap

• Price-War trap
Increasing Prices

Delayed quotation pricing

Escalator clauses

Unbundling

Reduction of discounts
 Brand Leader Responses to
Competitive Price Cuts
• Maintain price
• Maintain price and add value
• Reduce price
• Increase price and improve quality
• Launch a low-price fighter line
 Marketing Discussion

 Think of all the pricing methods

described in the chapter.
 As a consumer, which pricing method
do you personally prefer to deal with?
 Why?