Introduction to Marketing Course

Lecture 10
Chapter 10: Pricing
Strategies

Soha Abutaleb
2023
1-1
 Chapter 10: Learning Objectives
1. Identify the three major pricing strategies and discuss the
importance of understanding customer-value perceptions,
company costs, and competitor strategies when setting prices.
2. Identify and define the other important external and internal
factors affecting a firm’s pricing decisions.
3. Describe the major strategies for pricing new products.
4. Explain how companies find a set of prices that maximizes
the profits from the total product mix.
 What Is Price?

What is price?
 The total value that customers exchange
for the benefits of having or using the
product or service
Considerations in Setting Price
 Pricing Strategies

Strategy Description
Customer value- Pricing based on buyer
based perception
Cost-based Pricing based on seller costs

Competition-based Pricing based on competitors

 Major Pricing Strategies

 Customer Value-Based Pricing

 Value-based pricing uses the buyers’ perceptions of value rather than
the seller’s cost.
 Value-based pricing is customer driven.
 Cost-based pricing is product driven.
 Price is set to match perceived value.
Value-Based Pricing Examples
Value-Based Vs. Cost-Based Pricing
 Value-Based Pricing Types

 Good Value Pricing

 is offering just the right combination of quality and good service at a
fair price
 Marketers have adopted the strategy of good-value pricing—offering
the right combination of quality and good service at a fair price.
 In many cases, this has involved introducing less-expensive versions
of established brand name products or new lower-price lines.
 Value-Based Pricing Types

 Good Value Pricing

 Everyday Low Pricing: Charges a continuously low price for a product
over a long-time horizon such as Walmart-Carrefour

 High-low pricing: Charges a high price for a product and later sells it at
a low price through sale events or promotions such as Bath & Body
works- The Body Shop
 Value-Based Pricing Types

 Value-Added Pricing
 Value-added pricing attaches value-added features and
services to differentiate the companies offers and thus
their higher prices.

 Example: Philips Lighting system (LED) which is more

energy-efficient
 Okhtein Bags
 Pricing Strategies (2 of 4)
Customer Valued-Based Pricing

Considerations Strategies

• Good-Value Pricing:
• Customer needs
– Overall benefits = price
• Value-Added Pricing:
• Customer perceptions – Overall benefits = same
or higher price
• Price based on
Blank
perception of value
 Cost-Based Pricing

 Cost-Based Pricing
 sets prices based on the costs for producing, distributing, and selling the
product plus a fair rate of return for effort and risk.

 Fixed costs are the costs that do not vary with production or sales level.
 Rent
 Heat
 Interest
 Executive salaries
 Cost-Based Pricing

 Cost-Based Pricing

 Variable costs are the costs that do vary with production or sales level.

 Total costs: the sum of fixed and variable costs for a given level of production.
 Competition-Based Pricing

 Competition-Based Pricing
 Competition-based pricing is setting prices based on competitors’
strategies, costs, prices, and market offerings.

 Pricing versus competitors: Caterpillar dominates the heavy equipment industry

despite charging premium prices. Customers believe that Caterpillar gives them a
lot more value for the price over the lifetime of its machines.
 Competition-Based Pricing

Considerations Strategies
• Customer’s frame of reference • Competitive pricing
• Competitors’
– Offering
• Above, at or below pricing
– Market position
– Strengths & weaknesses
 The Market and The Demand

 Analyzing the Price–Demand Relationship

 The demand curve shows the number of units the market will buy in a given
period at different prices
 Demand and price are inversely related.
 Higher price = lower demand
 The Market and The Demand

 Price Elasticity of Demand

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

 Inelastic demand is when demand hardly changes with a small change in price
 Elastic demand is when demand changes greatly with a small change in price
 Major Pricing Strategies

 Market Skimming Pricing

 strategy sets high initial prices to “skim” revenue layers from the market.
 Product quality and image must support the price.
 Buyers must want the product at the price.

 Market-penetration pricing involves setting a low price for a new product in order to
attract a large number of buyers and a large market share.
 Product Mix Pricing Strategies

 Product line pricing

 Optional product pricing
 Captive product pricing
 By-product pricing
 Product bundle pricing
 Product Mix Pricing Strategies

 Product line pricing takes into account the cost differences between products in the
line, customer evaluations of their features, and competitors’ prices.
 Optional product pricing takes into account optional or accessory products along with
the main product.
 Captive product pricing sets prices of products that must be used along with the main
product.
 By-product pricing sets a price for by-products in order to make the main product’s
price more competitive.
 Product bundle pricing combines several products at a reduced price.
Product Mix Pricing Strategies
 Price Changes (1 of 2)

 Price cuts may be initiated due to:

 Excess capacity
 Falling demand
 Drive to dominate market
 Price increases may be initiated due to:
 Cost inflation
 Over-demand
 Price Changes (2 of 2)
 Buyers will react – not always as expected!
 Competitors may react:
 Reduce price to match competition
 Raise the perceived value of its offer
 Improve quality and increase price
 Launch a low-price “fighting brand”
In-Class test
Week 10-Part 2
Distribution and
Promotion Strategies
 Supply Chains and Value Delivery Networks

 Upstream partners are firms that supply raw materials,

components, parts, information, finances, and expertise needed to create a
product or service.

 Downstream partners include the marketing channels or distribution

channels that look toward the customer, including retailers and wholesalers.

 Value delivery network is composed of the company, suppliers,

distributors, and, ultimately, customers who partner with each other to
improve the performance of the entire system
 The Nature and Importance of Marketing Channels

 Marketing channel (distribution channel) is a set of interdependent

organizations that help make a product or service available for use or
consumption by the consumer or business user.
The Nature and Importance of Marketing Channels
 The Nature and Importance of Marketing Channels

 Channel level is a layer of intermediaries that performs some work in

bringing the product and its ownership closer to the final buyer.
 Direct marketing channel is a marketing channel that has no
intermediary levels.
 Indirect marketing channel is a marketing channel containing one or
more intermediary levels
The Nature and Importance of Marketing Channels
 Types of Intermediaries

 Types of intermediaries refers to channel members available to carry

out channel work. Most companies face many channel member choices.

 Number of Marketing Intermediaries- Distribution Channel Strategies

 Intensive distribution
 Exclusive distribution
 Selective distribution
 Types of Intermediaries

Wholesalers
 Sell products to those
buying for resale or business
use
 Merchant wholesalers
Agents
• Perform only a few functions
and do not take title to goods
– Manufacturers’ agents

 Distributors – Advertising agencies

Retailers
• Sell products directly to
consumers
How Channel Members Add Value
 Distribution Channel Strategies

 Number of Marketing Intermediaries- Distribution Channel Strategies

 Intensive distribution
 Exclusive distribution
 Selective distribution
 Recap
1. Which of the following would be considered an upstream partner in a
company's supply chain?
 A) a firm that resells a finished product and shares the net sales with the
producer
 B) a firm that provides technical expertise in the production of a product
 C) a firm that markets a product to consumers through social media
 D) a firm that buys products at wholesale cost from the company
 E) a firm that exclusively markets a product to other businesses
 Recap
2. A ________ is made up of a company, its suppliers, distributors, and,
ultimately, customers who "partner" with each other to improve the
performance of the entire system.
A) manufacturing chain
B) distribution centre
C) marketing intermediary
D) value delivery network
E) disintermediation system
 Recap
3. Kevin Pinker is a freelance electrical engineer who writes computer algorithms for
companies such as SoftStar and BlueHill. SoftStar and BlueHill use these algorithms to
make specific programs based on online market research. These programs are then sold
to the online retailer, Abundon, which then sells them to individual consumers and
businesses. Which of the following is a marketing intermediary in this chain?
A) SoftStar
B) BlueHill
C) the consumer
D) Abundon
E) Kevin Pinker
 Recap
4. Which of the following is true of an intensive distribution strategy?
A) It gives sole rights to select dealers in a given area.
B) It strives to make products available where and when consumers want them.
C) Compared with other distribution strategies, it uses the least number of
intermediaries to sell products.
D) Compared with other distribution strategies, it provides the best support for dealers
of luxury products.
E) It discards traditional intermediaries and uses direct marketing to reach customers.
Chapters 13,14 and 15
Promotional Strategy- Study these chapters from SLIDES ONLY!
 The Promotional Mix
 The promotion mix is the specific blend of promotion tools that the company uses
to persuasively communicate customer value and build customer relationships.

 Advertising is any paid form of nonpersonal presentation and promotion of ideas,

goods, or services by an identified sponsor.
 Broadcast
 Print
 Online
 Mobile
 Outdoor
 The Promotional Mix

 Sales promotion is a short-term incentive to encourage the purchase or

sale of a product or service.
 Discounts
 Coupons
 Displays
 Demonstrations
 The Promotional Mix
 Personal selling
 is the personal interaction by the firm’s sales force for the purpose of engaging
customers, making sales, and building customer relationships.
 Public relations
 involves building good relations with the company’s various publics by
obtaining favorable publicity, building up a good corporate image, and handling
or heading off unfavorable rumors, stories, and events.
 Direct and digital marketing
 involves engaging directly with carefully targeted individual consumers and
customer communities to both obtain an immediate response and build lasting
customer relationships.
 Integrated Marketing Communications

 The New Marketing Communications Model

 Consumers are changing.
 Marketing strategies are changing.
 Advances in digital technology
 Integrated Marketing Communications

 Integrated marketing communications (I M C) involves carefully

integrating and coordinating the company’s many communications
channels to deliver a clear, consistent, and compelling message about
the organization and its products.
Elements in the Communication Process
 Steps in Developing Effective Marketing
Communication
 Identify the target audience
 Determine the communication objectives
 Design the message
 Choose the media to send the message
 Select message source and collect feedback
 Design the Message Content

 Message Content – “What to Say”

 Rational appeal relates to the audience’s self-interest.
 Emotional appeal is an attempt to stir up positive or negative emotions
to motivate a purchase.
 Moral appeal is directed to an audience’s sense of what is right and
proper.
 Message format
 Choosing Communication Channels and Media

 Personal communication channels refers to two or more people

communicate directly with each other. They may communicate face-to-
face, phones, or internet chats.
 Buzz marketing involves cultivating opinion leaders and getting them
to spread information about a product or service to others in their
communities.
 Nonpersonal communication channels are media that carry messages
without personal contact or feedback, including major media,
atmospheres, and events.
 Selecting the Message Source

 The message’s impact depends on how the target audience views

the communicator.
 Celebrities
 Athletes
 Entertainers
 Professionals
 Health care providers
 Shaping the Overall Promotional Mix

 The concept of integrated marketing communications suggests that

the company must blend the promotion tools carefully into a
coordinated promotion mix.
 Shaping the Overall Promotional Mix

 The Nature of Each Promotional Tool

 Advertising can reach masses of geographically dispersed buyers at a
low cost per exposure, and it enables the seller to repeat a message
many times.
 Personal selling is the most effective method at certain stages of the
buying process, particularly in building buyers’ preferences,
convictions, actions, and developing customer relationships.
 Shaping the Overall Promotional Mix

 The Nature of Each Promotional Tool

 Sales promotion includes coupons, contests, cents-off deals, and
premiums that attract consumer attention and offer strong incentives to
purchase.
 Public relations is a very believable form of promotion that includes
news stories, features, sponsorships, and events.
 Direct and digital marketing is an immediate, customized, and
interactive promotional tool that includes direct mail, catalogs,
telephone marketing, online, mobile, and social media.
 Recap
1. The use of short-term incentives to encourage the purchase or sale of a
product or service is called ________.
 A) direct marketing
 B) sales promotion
 C) personal selling
 D) public relations
 E) publicity
 Recap
2. Which of the five major promotion tools includes building up a positive
corporate image and handling unfavorable stories and events?
A) sales promotion
B) personal selling
C) direct marketing
D) public relations
E) search engine optimization
 Recap
3. More companies are adopting the concept of ________, which carefully
coordinates the company's many communication channels to deliver a clear,
consistent, and compelling message about the organization and its brands.
A) integrated marketing communications
B) integrated personal selling
C) integrated competitive methods
D) nonpersonal communication channels
E) buzz marketing
 Recap
4. Integrated marketing communications require a company's mass-market
advertisements, website, email, and personal selling communications to all
have ________.
A) equal portions of the advertising budget
B) independent communications directors
C) separate marketing objectives
D) the same target audience
E) the same clear and compelling message
Next Week-
Quiz 3
Includes Chapter 8, 9 and
10