MARKETING MANAGEMENT
12th edition
14
Developing Pricing
Strategies and
Programs
Kotler Keller
Chapter Questions
• How do consumers process and evaluate prices?
• How should a company set prices initially for
products or services?
• How should a company adapt prices to meet
varying circumstances and opportunities?
• When should a company initiate a price change?
• How should a company respond to a competitor’s
price challenge?
14-2
Whirlpool’s Duet
combo is nearly
four times the
price of
comparable
models
14-3
Synonyms for Price
• Rent • Special assessment
• Tuition • Bribe
• Fee • Dues
• Fare • Salary
• Rate • Commission
• Toll • Wage
• Premium • Tax
• Honorarium
14-4
Common Pricing Mistakes
• Determine costs and take traditional
industry margins
• Failure to revise price to capitalize on
market changes
• Setting price independently of the rest of
the marketing mix
• Failure to vary price by product item,
market segment, distribution channels, and
purchase occasion
14-5
Consumer Psychology and Pricing
Reference Prices
Price-quality inferences
Price endings
Price cues
14-6
Table 14.1 Possible Consumer
Reference Prices
• “Fair price” • Lower-bound price
• Typical price • Competitor prices
• Last price paid • Expected future price
• Upper-bound price • Usual discounted
price
14-7
Table 14.2 Consumer
Perceptions vs. Reality for Cars
Overvalued Brands Undervalued Brands
• Land Rover • Mercury
• Kia • Infiniti
• Volkswagen • Buick
• Volvo • Lincoln
• Mercedes • Chrysler
14-8
Price Cues
• “Left to right” pricing ($299 versus
$300)
• Odd number discount perceptions (like
9)
• Even number value perceptions
• Ending prices with 0 or 5
14-9
When to Use Price Cues
• Customers purchase
item infrequently
• Customers are new
• Product designs vary
over time
• Prices vary seasonally
• Quality or sizes vary
across stores
14-10
Steps in Setting Price
Select the price objective
Determine demand
Estimate costs
Analyze competitor price mix
Select pricing method
Select final price
14-11
Step 1: Selecting the Pricing
Objective
• Survival
• Maximum current
profit
• Maximum market
share
• Maximum market
skimming
• Product-quality
leadership
14-12
Step 2: Determining Demand
Price Sensitivity
Estimating
Demand Curves
Price Elasticity
of Demand
14-14
Figure 14.2 Inelastic and Elastic Demand
14-15
Step 3: Estimating Costs
Types of Costs
Accumulated
Production
Activity-Based
Cost Accounting
Target Costing
14-16
Cost Terms and Production
• Fixed costs
• Variable costs
• Total costs
• Average cost
• Cost at different levels
of production
14-17
Figure 14.4 Cost per Unit as a Function of
Accumulated Production
14-18
Step 5: Selecting a
Pricing Method
• Markup pricing
• Target-return pricing
• Perceived-value
pricing
• Value pricing
• Going-rate pricing
• Auction-type pricing
14-20
Auction-Type Pricing
English auctions
Dutch auctions
Sealed-bid auctions
14-22
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
14-23
Price-Adaptation Strategies
Geographical Pricing
Discounts/Allowances
Promotional Pricing
Differentiated Pricing
14-24
Promotional Pricing Tactics
• Loss-leader pricing
• Special-event pricing
• Cash rebates
• Low-interest financing
• Longer payment terms
• Warranties and
service contracts
• Psychological
discounting
14-25
Differentiated Pricing and
Price Discrimination
• Customer-segment
pricing
• Product-form
pricing
• Image pricing
• Channel pricing
• Location pricing
• Time pricing
14-26
Table 14.5 Profits Before and
After a Price Increase
14-27
Increasing Prices
Delayed quotation pricing
Escalator clauses
Unbundling
Reduction of discounts
14-28
Marketing Debate
Is the right price a fair price?
Take a position:
1. Prices should reflect the value that
consumers are willing to pay.
2. Prices should primarily just reflect the cost
involved in making a product.
14-29
Marketing Discussion
As a consumer, which pricing
method do you personally
prefer to deal with? Why?
14-30
