Hult | Pride | Ferrell

Marketing Part 5
Foundations 5e Pricing
Decisions
 12. Strategic Pricing Management
13. Pricing Decisions

© 2013 South-Western, a part of Cengage Learning 12-2

 Price

The value paid for a product in a marketing

exchange
Buyers decide whether the utility gained from an
exchange is worth the buying power sacrificed
Price does not always take the form of money paid
Barter
The oldest form of trade; money may not be
involved

© 2013 South-Western, a part of Cengage Learning 12-3

 The Importance of Price to Marketers

 Price is the only marketing mix variable that

can be changed quickly
 Price is related to total revenue and profit
• Profit = Total Revenue – Total Costs
• Profit = (Price x Quantity Sold) – Total Costs
 Price has a psychological impact on
customers
• A high price can emphasize the quality of a
product

© 2013 South-Western, a part of Cengage Learning 12-4

 Price Competition

Emphasizing price as an issue and matching or

beating competitors’ prices
Flexibility is a major advantage
To compete effectively, firm must be the low-cost
seller
Price war with competitors is a danger

© 2013 South-Western, a part of Cengage Learning 12-5

 Nonprice Competition
Emphasizing factors other than price to distinguish
a product from competing brands
• Can help a firm build customer loyalty
A firm must be able to distinguish its brand
 Unique features
 High quality
 Promotion
 Packaging
 Excellent customer service
Even in nonprice competition, marketers must be
aware of competitors’ brands
© 2013 South-Western, a part of Cengage Learning 12-6
 Factors That Affect Pricing
Decisions

© 2013 South-Western, a part of Cengage Learning 12-7

 Organizational and
Marketing Objectives

 Marketers should set prices that are

consistent with the organization’s goals and
mission
 Pricing decisions should be compatible with
the firm’s marketing objectives

© 2013 South-Western, a part of Cengage Learning 12-8

 Costs
 Costs are a crucial issue when establishing
price
 Ideally goods are sold above cost, exceptions
(in the short-term) are:
 To match competition
 To generate cash flow
 To increase market share
 Marketers must be certain to include all costs
when calculating price
 Cost reduction has been be a major focus for
marketers
© 2013 South-Western, a part of Cengage Learning 12-9
 Other Marketing Mix Variables

 All marketing mix variables are highly

interrelated
 Price can affect demand
• Perceived price/quality relationships influence
image of products or brands
 Price is linked to how it is distributed
 Promotions vary by price of goods

© 2013 South-Western, a part of Cengage Learning 12-10

 Channel Member Expectations

 Channel members often expect to receive

discounts for large orders and prompt
payments
 Resellers expect producers to provide
support activities such as sales and service
training and cooperative advertising
 Producers must consider the associated costs
of discounts and support activities

© 2013 South-Western, a part of Cengage Learning 12-11

 Customer’s Interpretation
and Response

Customer Interpretation
What price means or communicates to customers
Customer Response
Whether the price moves the customer closer to
purchase and the degree to which the price
enhances satisfaction with the purchase experience
and product
Customers’ interpretation and response are
influenced by their assessment of value
• They evaluate product attributes, benefits and status
associated with the product

© 2013 South-Western, a part of Cengage Learning 12-12

 Reference Prices

Internal Reference Price

A priced developing in the buyer’s mind
through experience with product
External Reference Price
A comparison price provided by others

© 2013 South-Western, a part of Cengage Learning 12-13

 Categorizations of Buyers

Value-Conscious
Concerned about both price and quality of a
product
Price-Conscious
Strive to always pay low prices
Prestige-Sensitive
Focus on products that signify prominence and
status

© 2013 South-Western, a part of Cengage Learning 12-14

 Competition
 Must know competitors’ prices so it can
adjust prices accordingly
 Price adjustments must be assessed in terms
of competitor’s response
• Regulated industries limit competitive pricing
• Unregulated monopolies can set any price
• Price cuts in oligopolies are not an effective
strategy
• In monopolistic competition, nonprice
competition is most effective
• In perfectly competitive markets, there is no
flexibility in setting prices
© 2013 South-Western, a part of Cengage Learning 12-15