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Introductory Pricing Strategies Explained

Pricing is an important part of marketing strategy that is influenced by cost, demand, and competition. Prices should be set based on objectives like profitability or market share, using strategies like cost-plus, markup, or perceived value pricing. Tactics can involve promotional pricing, discounts, or psychological approaches to influence consumers. An example is provided of a company that lowered earmuff prices on a promotional tape to boost sales.

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Rahul Singh
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79 views47 pages

Introductory Pricing Strategies Explained

Pricing is an important part of marketing strategy that is influenced by cost, demand, and competition. Prices should be set based on objectives like profitability or market share, using strategies like cost-plus, markup, or perceived value pricing. Tactics can involve promotional pricing, discounts, or psychological approaches to influence consumers. An example is provided of a company that lowered earmuff prices on a promotional tape to boost sales.

Uploaded by

Rahul Singh
Copyright
© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
Available Formats
Download as PPT, PDF, TXT or read online on Scribd

INTRODUCTORY

MARKETING
Pricing

M. Louise Ripley, MBA, PhD


PRICING LECTURE
Questions We Will Answer
 How is pricing part of
Marketing Strategy?
 How is pricing affected by
Cost, Demand, Competition?
 How do you set a price?
KEY FACTORS IN PRICING

 Objectives
 Strategies
 Policies and Constraints
 Tactics
PRICING OBJECTIVES
 Cost

 Demand

 Competition
PRICING OBJECTIVES
COST ORIENTED
 Emphasis - Cost/Profit

 Target Return
 Satisfactory Return
 Maximize Current Profit
 Maximize Long Term Profit
COST CALCULATION:
How real is this price?
Estimate demand function Q = 1000 - 4P
Estimate cost function C = 6000 + 50Q
Calculate total revenues R = P(1000-4P)
Calculate Profits
 Z = (1000P - 4P2) - (6000 + 50Q)

 Z = -56,000 + 12,000P - 4P2 = $150


PRICING OBJECTIVES
DEMAND ORIENTED
 Emphasis - Demand/Sales
 Growth in Market Share
 Growth in Dollar or Unit Sales
PRICING OBJECTIVES
DEMAND ORIENTED
 How to Grow in Sales
Skimming the Cream
 Conditions:
 Demand Not Sensitive to Price
 Different Price Segments
 Consumers Unaware of Cost
 Little Competition
Skimming the Cream - High Price

 MAYOR’S FOUNTAIN PEN


$500?
Their Advertising Claim:
“For the average lifestyle, the average
writing instrument is perfectly adequate.
But while most pens are designed for signing
postcards, ours are designed for signing peace
treaties.”
Skimming the Cream
continuing the strategy...

 High Price First


 Lower Price Later
 Dupont: Cellophane, Nylon
 Polaroid: Camera
PRICING OBJECTIVES
DEMAND ORIENTED
 How to Grow in Sales
 Skimming the Cream
 Penetration Pricing
PRICING OBJECTIVES
DEMAND ORIENTED
 Penetration Pricing - Low Price
 Conditions:
 Demand is Price Sensitive
 No Different Price Segments
 Product Not A Status Item
 Competition Likely
Penetration Pricing
 Regular Penetration Pricing
The Colt Car
Sells at regular low price
Penetration Pricing
Special Condition

Nabisco’s New “Giggles” Cookies


20 cents off coupon
for a short time only
PRICING OBJECTIVES
COMPETITION ORIENTED
 Emphasis - Competition/Status Quo

 Meeting the Competition


 Non-Price Competition
BREAK EVEN ANALYSIS
BEP = $30,000/($1.20-$0.80) = 75,000 units
$ Sells at $1.20
VC = $0.80

FC = $30,000

Units
Break Even Point = 75,000 units
PRICING STRATEGIES
 Mixing Price with the Other
Variables
Literally Thousands of
Combinations
Marketing Mix Combinations
Just One: Price and Quality
P High Medium Low

QHigh Premium Penetration Big Bargain

Medium Overpriced Average Bargain

Low Hit & Run Shoddy Cheap


PRICING STRATEGIES
 Cost

 Demand

 Competition
PRICING STRATEGIES
COST ORIENTED
 Target Profit Pricing

Mark-Up Pricing
PRICING STRATEGIES
COST ORIENTED
 Problems
 Difficulties Determining Cost
Mark- Up Pricing
Problems: What is Mark-up?
13%? < Frozen Foods > 53%?
PRICING STRATEGIES
COST ORIENTED
 Problems
 Difficulties Determining Cost
 Legal Problems
PRICE FIXING
PRICING STRATEGIES
DEMAND ORIENTED
 Perceived Value
PRICING STRATEGIES
DEMAND ORIENTED
 Perceived Value
 Demand Differential
PRICING STRATEGIES
DEMAND ORIENTED
 Perceived Value
 Demand Differential
 Customer Form
PRICING STRATEGIES
DEMAND ORIENTED
 Perceived Value
 Demand Differential
 Customer Form
PRICING STRATEGIES
DEMAND ORIENTED
 Perceived Value
 Demand Differential
 Customer Form
 Product Form
LEGAL PRODUCT FORM
PRICE DISCRIMINATION
 TV without stereo sells for $250

 TV with $5 worth of stereo parts


sells for $350
PRICING STRATEGIES
DEMAND ORIENTED
 Perceived Value
 Demand Differential
 Customer Form
 Product Form
 Place
PRICING STRATEGIES
DEMAND ORIENTED
 Perceived Value
 Demand Differential
 Customer Form
 Product Form
 Place
PRICING STRATEGIES
DEMAND ORIENTED
 Perceived Value
 Demand Differential
 Customer Form
 Product Form
 Place
 Time
PRICING STRATEGIES
DEMAND ORIENTED
 Perceived Value
 Demand Differential
 Customer Form
 Product Form
 Place
 Time
PRICING STRATEGIES
COMPETITION ORIENTED
 Going Rate

Sealed Bid
PRICING OBJECTIVES
and STRATEGIES
 Cost

 Demand

 Competition
PRICING POLICIES
AND CONSTRAINTS
 Management
 Distributors
 Competitors
 Suppliers
 Company Executives
 Stockholders
 Government regulations
PRICING TACTICS
 Psychological Pricing
 Odd - Even: $69.95
 Price Lining
PRICE LINING
MEN’S SUITS
 as seen by the wearer of a $500 suit:
cheap GOOD overpriced
$300 $500 $700
 as seen after a 10% price increase:
cheap GOOD overpriced
$330 $550 $770
PRICING TACTICS
 Psychological Pricing
 Odd - Even Pricing
 Price Lining
 Prestige Pricing
PRESTIGE PRICING

 BAYER
PRICING TACTICS
 Psychological Pricing
 Odd - Even Pricing
 Price Lining
 Prestige Pricing
 Promotional Pricing
ILLEGAL PROMOTIONAL
PRICING
Original Price $250

Illegal Pricing:
Was $350
Now Only
$300!!
PRICING TACTICS
 Discount Pricing
 Quantity
 Cash
 Trade/Functional
 Seasonal
 Consumer - everything else?
KEY FACTORS IN PRICING

 Objectives
 Cost, Demand, Competition
 Strategies
 Cost, Demand, Competition
 Policies and Constraints
 Tactics
PRICING LECTURE
SUMMARY
 How is pricing part of
Marketing Strategy?
 How is pricing affected by
Cost, Demand, Competition?
 How do you set a price?
 Real World Story - Earmuffs tape

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