Lecture 12: Setting Prices

© 2012 South-Western, a part of Cengage Learning 21-1

 Learning Objectives
 To describe the six major stages of the process
used to establish prices
 To understand the different pricing objectives
 To understand the importance of identifying
the target market’s evaluation of price
 To examine how marketers analyze
competitors’ prices
 To describe the bases used for setting prices
 To explain the different types of pricing
strategies
© 2012 South-Western, a part of Cengage Learning 21-2
 Stages for Establishing Prices

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 Development of Pricing Objectives

 Step one of the price-setting process

 Goals that describe what a firm wants to
achieve through pricing
 Should be consistent with organizational and
marketing objectives
 Can be short- or long-term and marketers
can employ multiple pricing objectives

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 Pricing Objectives and Typical Actions Taken to
Achieve Them

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 Assessment of the Target Market’s Evaluation of Price

 The second step in the price-setting process

 Importance of price depends on:
 Type of product
 Type of target market
 Purchase situation
 Value combines a product’s price and quality
attributes
• Customers use value to differentiate between
competing brands

© 2012 South-Western, a part of Cengage Learning 21-6

 Evaluation of Competitors’ Prices

 The third step in the price-setting process

 Marketers should use competitors’ prices to
help them establish their own prices
• Competitors’ prices may be closely guarded
 Pricing above competition creates an
exclusive image
 Pricing below competition can increase
market share

© 2012 South-Western, a part of Cengage Learning 21-7

 Selection of a Basis for Pricing
 The fourth step in the price-setting process
 The three major dimensions on which prices can be
based are:
 Cost
 Demand
 Competition
 An organization usually considers multiple
dimensions
 Type of product
 Market structure of the industry
 Brand’s market share position relative to competing brands
 Customer characteristics
© 2012 South-Western, a part of Cengage Learning 21-8
 Selection of a Pricing Strategy

 The fifth step in the price-setting process

 A pricing strategy is an approach or course
of action designed to achieve pricing and
marketing objectives

© 2012 South-Western, a part of Cengage Learning 21-9

 Common Pricing Strategies

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 Differential Pricing
Charging different prices to different buyers for the
same quality and quantity of product
 Negotiated Pricing
• Final price established through buyer/seller bargaining
 Secondary-Market Pricing
• One price for primary target market and a different
price for another market
 Periodic Discounting Pricing
• Systematic or patterns temporary price reductions
 Random Discounting Pricing
• Unsystematic temporary price reductions
© 2012 South-Western, a part of Cengage Learning 21-11
 New-Product Pricing

Setting the price for new products is one of the

most fundamental decisions in the marketing
mix
 Price Skimming
• Charging the highest possible price that buyers
who most desire the product will pay
 Penetration Pricing
• Setting the price below competing brands to
penetrate a market and gain market share quickly

© 2012 South-Western, a part of Cengage Learning 21-12

 Product-Line Pricing Strategies
Establishing and adjusting prices of multiple products
within a product line
• The goal is to maximize profits for an entire product line
 Captive Pricing
• Basic product in a product line is priced low while required
related items are priced higher
 Premium Pricing
• Giving the highest-quality products a line the highest prices
 Bait Pricing
• Low pricing on one item in a line with the intention of
selling higher-priced items in the line
 Price Lining
• Limited the number of prices for selected lines of
merchandise
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 Discussion Question
 Printer ink is a popular example of captive
pricing– why? How does captive pricing
work?

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 Price Lining

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 Psychological Pricing Techniques
Attempts to influence a customer’s perception of price to
make the product’s price more attractive
 Reference Pricing
• Positioning a moderately priced item next to a more
expensive brand to make it seem lower in price
 Bundle Pricing
• Packaging complementary products to be sold at a single
price
 Multiple-Unit Pricing
• Packaging together two or more identical products to be
sold at a single price
 Everyday Low Prices (EDLP)
• Setting a low price on products on a consistent basis
© 2012 South-Western, a part of Cengage Learning 21-16
 Psychological Pricing Techniques continued

Odd-Even Pricing
 Ending the price with certain numbers that
influence buyers’ perceptions of the price
Customary Pricing
 Pricing certain goods on the basis of
tradition
Prestige Pricing
 Setting prices at an artificially high level to
convey prestige or high quality
© 2012 South-Western, a part of Cengage Learning 21-17
 Professional Pricing

 Used by people with great skill or experience

in a field or activity
• Professional prices do not relate to the time or
effort expended
• A standard fee
 Professionals have an ethical responsibility
not to overcharge customers

© 2012 South-Western, a part of Cengage Learning 21-18

 Types of Promotional Pricing

Price is often coordinated with promotion

 Price Leader
• Products priced below the usual markup, near cost, or
below cost
• Management hopes sales of regularly priced merchandise
will offset the reduced revenues from the price leaders
 Special-Event Pricing
• Advertised sales or price-cutting is used to increase sales
volume and is linked to a holiday, a season, or other event
 Comparison Discounting
• The pricing of a product at a specific level and
simultaneously comparing it to a higher price
© 2012 South-Western, a part of Cengage Learning 21-19
 Determination of Price:
Pricing Strategy

The final step in the price-setting process

 Pricing Strategy
• Yields a certain price, which may need refining
• Helps in setting final price
• In absence of government controls, pricing
remains flexible and a convenient way to adjust
the marketing mix

© 2012 South-Western, a part of Cengage Learning 21-20