16

8
-1
17
LL
FA
@
s
nt
Developing Pricing

de
tu
rS
Strategies and Programs

da
ai
H
A.
r.
Dr
fo
D
TE
IC
TR
ES

Marketing Management, 15th ed

R
 8
-1
Assignments No 5

17
LL
FA
@
• Compare the pricing strategies of Carrefour

s
nt
de
tu
and Aoun Supermarket and share your

rS
da
findings with the class.

ai
H
A.
r.
D
• Answer Case Page : 512- 513 " Air Arabia"
fo
r
D
TE
IC
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© Dr. A. Haidar FALL 17-18

 In This In This Chapter, We Will Address

8
-1
17
the Following points:

LL
FA
@
1. How do consumers process and evaluate prices? (p. 483)

s
nt
2. How should a company set prices initially for products or

de
tu
services? (p. 489)

rS
da
3. How should a company adapt prices to meet varying

ai
H
circumstances and opportunities? (p. 504)

A.
r.
4. When and how should a company initiate a price change?
Dr
fo
(p. 507)
D
TE

5. How should a company respond to a competitor’s price

IC
TR

change? (p. 509)

ES
R

© Dr. A. Haidar FALL 17-18

 R
ES
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D
fo
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r.
A.
H
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da
Vs

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tu
de
nt
sell a value,

s
Sell a product

@
FA
LL
17
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8
16-4
 8
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17
LL
FA
@
s
nt
de
Setting one price policy for all

tu
rS
consumers Vs different prices for

da
ai
different consumers

H
A.
r.
Dr
fo
D
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IC
TR
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© Dr. A. Haidar FALL 17-18

 8
-1
PRICING

17
LL
FA
@
s
• Ryanair’s revolutionary pricing strategy

nt
de
tu
charges a nominal airfare or even nothing

rS
da
for the seat,

ai
H
A.
r.
D
• It charges a fee for almost everything else
r
fo
D
TE

involved in the flight.

IC
TR
ES
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© Dr. A. Haidar FALL 17-18

 8
-1
• Price is the one element of the marketing mix that

17
LL
produces revenue; ALL other elements produce

FA
@
costs.

s
nt
de
• Price communicates the company’s intended value

tu
rS
positioning of its product or brand.

da
ai
H
• A well-designed and marketed product can still

A.
r.
command a price premium and reap big profits.
Dr
fo
• New economic realities caused many consumers to
D
TE
IC

reevaluate what they are willing to pay for products

TR

and services
ES
R

© Dr. A. Haidar FALL 17-18

 8
-1
PRICING

17
LL
FA
@
• Throughout most of history prices were set

s
nt
de
by negotiation between buyers and sellers.

tu
rS
da
ai
H
• Traditionally, price has operated as the

A.
r.
D
major determinant of buyer choice.
fo
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© Dr. A. Haidar FALL 17-18

 8
-1
Understanding Pricing

17
LL
FA
What Is Price?

@
s
nt
de
tu
Bribe

rS
Rent Tuition

da
Salary

ai
Fee Fare

H
A.
Wage

r.
Rate Toll
Dr
fo Interest
Commission Premium
D
TE

Tax
IC

Assessment Retainer
TR
ES
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 8
-1
How Companies Price

17
LL
FA
@
• In small companies, prices are often set by the boss

s
nt
de
tu
rS
• In large companies, pricing is handled by division

da
ai
and product-line managers

H
A.
r.
Dr
• In large companies, top management sets general
fo
D
TE

pricing objectives, policies, and

IC
TR
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© Dr. A. Haidar FALL 17-18

 8
Short list of how the Internet allows sellers to discriminate

-1
17
between buyers and buyers to discriminate between sellers.

LL
FA
@
• Buyers can:

s
nt
de
• Get instant price comparisons from thousands

tu
rS
da
of vendors.

ai
H
• mySimon.com.

A.
•

r.
Intelligent shopping agents

D
r
• prices, and reviews
fo
D

• Check prices at the point of purchase.

TE
IC

• smart phones
TR
ES
R

© Dr. A. Haidar FALL 17-18

 8
Short list of how the Internet allows sellers to discriminate

-1
17
between buyers and buyers to discriminate between sellers.

LL
FA
• Buyers can:

@
s
nt
• Name their price and have it met.

de
tu
rS
• On Priceline.com airline ticket, hotel, or rental car, and the site

da
looks for any seller willing to meet that price.

ai
H
• Volume-aggregating sites combine the orders of many customers

A.
and press the supplier for a deeper discount.

r.
D
• Get products free. fo
r
D
TE

• free software movement started with Linux,

IC

• The biggest challenge is: How do you compete with programs that
TR
ES

can be had for free?

R

© Dr. A. Haidar FALL 17-18

 8
Short list of how the Internet allows sellers to discriminate

-1
17
between buyers and buyers to discriminate between sellers.

LL
FA
• Sellers can:

@
s
nt
• Monitor customer behavior and tailor offers to

de
tu
rS
individuals.

da
• B-to-B customers,

ai
H
A.
r.
• Give certain customers access to special prices.
Dr
fo
limited-time sales, usually two-day events.
D
TE
IC
TR
ES
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© Dr. A. Haidar FALL 17-18

 8
Short list of how the Internet allows sellers to discriminate

-1
17
between buyers and buyers to discriminate between sellers.

LL
FA
@
s
• Both buyers and sellers can:

nt
de
tu
• Negotiate prices in online auctions and exchanges

rS
da
or even in person.

ai
H
• Post a sale on eBay.

A.
r.
• OLX
Dr
fo
• half of U.S. adults reported bargaining for a better deal
D
TE

• 90 percent were successful at least once.

IC
TR
ES
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© Dr. A. Haidar FALL 17-18

 8
Short list of how the Internet allows sellers to discriminate

-1
17
between buyers and buyers to discriminate between sellers.

LL
FA
@
• successful tactics for bargaining:

s
nt
de
• I’d check competitor’s prices (57 % of respondents);

tu
rS
• looked for lower prices at a walk-in store (57 %);

da
ai
• chatted with salesperson to make a personal connection

H
A.
(46 %);

r.
D
• used other store circulars or coupons as leverage (44 %);
fo
r
D

and
TE
IC

• checked user reviews to see what others paid (39 %).

TR
ES
R

© Dr. A. Haidar FALL 17-18

 8
-1
A Changing Pricing Environment

17
LL
FA
• Pricing practices have changed significantly,

@
s
nt
• severe recession in 2008–2009,

de
tu
• millennial generation group (born 977 - 1994) phenomena

rS
da
ai
H
• sharing economy “moving from economy world of

A.
r.
D
ownership to economy world of access to assets.”
r
fo
D

• Bartering $12 billion annually in US. www.swap.com

TE
IC

• Renting RentTheRunway 10% of Original price.

TR
ES
R

© Dr. A. Haidar FALL 17-18

© Dr. A. Haidar FALL 17-18
R
ES
TR
IC
TE
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r.
A.
H
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da
rS
tu
de
nt
s
@
FA
LL
17
-1
8
© Dr. A. Haidar FALL 17-18
R
ES
TR
IC
TE
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fo
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A.
H
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da
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tu
de
nt
s
@
FA
LL
17
-1
8
© Dr. A. Haidar FALL 17-18
R
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H
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da
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tu
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nt
s
@
FA
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17
-1
8
 8
-1
How Companies Price

17
LL
FA
@
 Effectively designing and implementing pricing

s
nt
de
tu
strategies requires a thorough understanding of

rS
da
consumer pricing psychology and a systematic

ai
H
A.
approach to setting, adapting, and changing
r.
Dr
fo
D

prices.
TE
IC
TR
ES
R

© Dr. A. Haidar FALL 17-18

 8
-1
Consumer Psychology and Pricing

17
LL
FA
• Marketers recognize that consumers often actively

@
s
nt
process price information, interpreting prices in terms

de
tu
of their knowledge from

rS
da
• prior purchasing experiences,

ai
H
• formal communications, and

A.
• point-of-purchase or

r.
D
• online resources. fo
r
D
TE
IC

• Purchase decisions are based on how consumers

TR

perceive prices.
ES
R

© Dr. A. Haidar FALL 17-18

 8
-1
Consumer Psychology and Pricing

17
LL
FA
• Consumers consider the current actual price—not the

@
s
nt
marketer’s stated price.

de
tu
rS
• Consumers may have a lower price threshold below

da
which prices may signal inferior or unacceptable quality.

ai
H
A.
• Upper price threshold above which prices are prohibitive

r.
D
and seen as not worth the money
fo
r
D

• Compare Armani, Gap & H&M

TE
IC
TR
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© Dr. A. Haidar FALL 17-18

 8
Consumer Psychology and Pricing

-1
17
LL
FA
@
upper price threshold

s
nt
de
tu
rS
da
ai
H
A.
r.
Dr
fo
D
TE
IC

lower price threshold

TR
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 8
Consumer Psychology

-1
17
LL
and Pricing

FA
@
s
nt
de
tu
rS
da
ai
H
A.
r.
Dr
fo
D
TE
IC
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© Dr. A. Haidar FALL 17-18

 8
-1
Reference Prices

17
LL
FA
• When examining products,

@
consumers often employ reference

s
nt
de
prices.

tu
rS
• In considering an observed price,

da
ai
consumers often compare it to an

H
A.
internal reference price (pricing

r.
D
from memory).
r
fo
D
TE

• An external frame of reference

IC
TR

(“regular retail price”).

ES
R

© Dr. A. Haidar FALL 17-18

 8
-1
Reference Prices

17
LL
FA
• All types of reference prices are possible.

@
s
nt
• fair price,

de
tu
• typical price,

rS
da
• last price paid,

ai
H
• competitor price,

A.
•

r.
usual discounted price,
• Dr
fo
expected price
D
TE

• reference prices creates “unpleasant surprises”

IC
TR

which can have a greater impact on purchase

ES
R

© Dr. A. Haidar FALL 17-18

 8
-1
Price-Quality Inferences

17
LL
FA
• Many consumers use price as an indicator of

@
s
nt
quality

de
tu
rS
da
• Some companies adopt exclusivity and scarcity to

ai
H
A.
justify premium prices

r.
D
• Tiffany & Co (affordable luxury Vs Louis Vuitton)
fo
r
D
TE
IC
TR
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R

© Dr. A. Haidar FALL 17-18

 8
Despite booming demand, Ferrari limits production and the number of

-1
17
sports cars that it sells to maintain the brand's exclusivity.

LL
FA
@
s
nt
de
tu
rS
da
ai
H
A.
r.
Dr
fo
D
TE
IC
TR
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R

© Dr. A. Haidar FALL 17-18

© Dr. A. Haidar FALL 17-18
R
ES
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D
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r.
A.
H
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da
rS
tu
de
nt
s
@
FA
LL
17
-1
8
 8
-1
17
Figure 16.1: Nine Price-Quality Strategies

LL
FA
@
s
nt
de
tu
rS
da
ai
H
A.
r.
Dr
fo
D
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© Dr. A. Haidar FALL 17-18

 8
-1
Price Endings

17
LL
FA
• Many sellers believe that prices should end in an

@
s
odd number. (299)

nt
de
tu
• Research has shown that consumers tend to

rS
da
process prices in a “left-to-right” manner rather

ai
H
A.
than by rounding.

r.
Dr
fo
• Pricing cues like “sale” signs and prices that end in
D
TE

a 9 are less effective the more they are employed.

IC
TR
ES
R

© Dr. A. Haidar FALL 17-18

 8
-1
SETTING THE PRICE

17
LL
FA
@
s
 A firm must set a price for the first time when:

nt
de
tu
 it develops a new product,

rS
da
 introduces its regular product into a new

ai
H
A.
distribution channel or geographic area,

r.
D
 it enters bids on new contract work.
fo
r
D
TE
IC
TR
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R

© Dr. A. Haidar FALL 17-18

 8
-1
SETTING THE PRICE

17
LL
FA
@
 The firm must decide where to position its product

s
nt
de
on quality and price.

tu
rS
da
 Most marketers have 3–5 price points or tiers.

ai
H
A.
 The firm has to consider many factors in setting its
r.
Dr
fo
pricing policy.
D
TE
IC
TR
ES
R

© Dr. A. Haidar FALL 17-18

 8
-1
Firms have 3–5 price points or tiers

17
LL
FA
• Marriott Hotels is good at developing different brands

@
s
or variations of brands for different price points:

nt
de
tu
1. Marriott Vacation Club—Vacation Villas (highest price),

rS
da
2. Marriott Marquis (high price),

ai
H
3. Marriott (high-medium price),

A.
r.
4. Renaissance (medium-high price),
Dr
fo
5. Courtyard (medium price),
D
TE

6. Towne Place Suites (medium-low price), and

IC
TR

7. Fairfield Inn (low price)

ES
R

© Dr. A. Haidar FALL 17-18

 R
ES
TR
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A.
H
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da
rS
tu
de
nt
s
@
FA
LL
17
-1
8
Nine Price-Quality Strategies

16-35
 8
Steps in Setting Price

-1
17
LL
FA
@
s
nt
de
tu
rS
da
ai
H
A.
r.
Dr
fo
D
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© Dr. A. Haidar FALL 17-18

 8
-1
Step 1: Selecting the Pricing Objective

17
LL
FA
@
s
i. Survival

nt
de
tu
ii. Maximum current profit

rS
da
ai
iii. Maximum market share

H
A.
r.
iv. Maximum market skimming
Dr
fo
v. Product-quality leadership
D
TE
IC
TR
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© Dr. A. Haidar FALL 17-18

 8
-1
Step 1: Selecting the Pricing Objective

17
LL
FA
@
• Survival: if firms are plagued with overcapacity, intense

s
nt
competition, or changing consumer wants.

de
tu
rS
da
ai
• maximize current profits. Firms estimate the demand and

H
A.
costs associated with alternative prices and choose the

r.
D
price that produces maximum current profit, cash flow,
r
fo
or rate of return on investment
D
TE
IC
TR
ES
R

© Dr. A. Haidar FALL 17-18

 8
-1
Step 1: Selecting the Pricing Objective

17
LL
FA
@
s
• maximize market share/use market-penetration

nt
de
tu
pricing

rS
da
• The market is highly price sensitive and a low price stimulates

ai
H
market growth

A.
r.
• Production and distribution costs fall with accumulated
Dr
fo
production experience
D
TE

• Low price discourages actual and potential competition.

IC
TR
ES
R

© Dr. A. Haidar FALL 17-18

 8
-1
Step 1: Selecting the Pricing Objective

17
LL
FA
• maximize market skimming unveiling a new technology

@
s
nt
(prices start high and slowly drop over time).

de
tu
• Fatal if a worthy competitor decides to price low.

rS
da
• Consumers who buy early at the highest prices may be dissatisfied if

ai
they compare themselves with those who buy later at a lower price.

H
A.
• A sufficient number of buyers have a high current demand

r.
Dr
• The unit costs of producing a small volume are high enough to cancel
fo
D
the advantage of charging what the traffic will bear
TE
IC

• The high initial price does not attract more competitors to the market
TR

• The high price communicates the image of a superior product.

ES
R

© Dr. A. Haidar FALL 17-18

 8
-1
Step 1: Selecting the Pricing Objective

17
LL
FA
• Product-quality leader in the market “affordable

@
s
nt
luxuries” firms produce products or services

de
tu
characterized by high levels of perceived quality,

rS
da
taste, and status with a price just high enough not

ai
H
to be out of consumers’ reach.

A.
r.
Dr
• Nonprofit and public organizations may have other pricing
fo
D
TE

objectives
IC
TR
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R

© Dr. A. Haidar FALL 17-18

 Step 2: Determining Demand

8
-1
17
Each price will lead to a different level of demand and

LL
therefore have a different impact on a company’s

FA
marketing objectives.

@
s
nt
de
Price Sensitivity

tu
rS
da
ai
Estimating

H
A.
Demand Curves

r.
Dr
fo
D

Price Elasticity
TE
IC

of Demand
TR
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R

© Dr. A. Haidar FALL 17-18

 8
Price Sensitivity

-1
17
LL
FA
@
 The demand curve shows the market’s probable purchase

s
nt
de
quantity at alternative prices.

tu
rS
 The first step in estimating demand is to understand what

da
ai
H
affects price sensitivity.

A.
r.
D
 customers are most price-sensitive to products that cost
r
fo
a lot or are bought frequently.
D
TE
IC
TR
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R

© Dr. A. Haidar FALL 17-18

 8
-1
Price Sensitivity

17
LL
FA
 Customers are less price-sensitive to

@
s


nt
low-cost items or items they buy infrequently;

de


tu
when price is only a small part of the total cost of obtaining,

rS
 There are few or no substitutes or competitors;

da
ai


H
They do not readily notice the higher price;

A.
 They are slow to change their buying habits;

r.
D
 r
They think the higher prices are justified;
fo
D
TE

 Companies prefer customers who are less price-

IC
TR

sensitive.
ES
R

© Dr. A. Haidar FALL 17-18

 8
Table 16.3 Factors That Reduce Price Sensitivity

-1
17
LL
FA
 Tom Nagle offers this list of Factors That Reduce Price

@
s
Sensitivity

nt
de
 The product is more distinctive

tu
rS
 Buyers are less aware of substitutes

da
 Buyers cannot easily compare the quality of substitutes

ai
H
 The expenditure is a smaller part of the buyer’s total income

A.
 The expenditure is small compared to the total cost of the end product

r.
D
 Part of the cost is borne by another party
r
fo

D
The product is used in conjunction with assets previously bought
TE

 The product is assumed to have more quality, prestige, or exclusiveness

IC
TR

 Buyers cannot store the product

ES
R

16-45
 8
-1
Estimating Demand Curves

17
LL
FA
• Most companies attempt to measure their demand curves

@
using several different methods.

s
nt
de
• Surveys can explore how many units consumers would buy

tu
rS
at different proposed prices.

da
ai
H
• Price experiments can vary the prices of different products

A.
r.
to see how the change affects sales.
Dr
fo
• Statistical analysis of past prices, quantities sold, and other
D
TE

factors can reveal their relationships.

IC
TR
ES
R

© Dr. A. Haidar FALL 17-18

 8
-1
Figure 14.2 Inelastic and

17
LL
Elastic Demand

FA
@
s
nt
de
tu
rS
da
ai
H
A.
r.
Dr
fo
D
TE
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© Dr. A. Haidar FALL 17-18

 8
-1
Step 3: Estimating Costs

17
LL
FA
 Demand sets a ceiling on the price

@
the company can charge for its

s
nt
product. Costs set the floor.

de
tu
rS
Accumulated

da
ai
Production

H
A.
Activity-Based

r.
Dr
fo
Cost Accounting
D
TE
IC

Target Costing
TR
ES
R

© Dr. A. Haidar FALL 17-18

 8
-1
Cost Terms and Production

17
LL
FA
@
i. Fixed costs, or overhead, are costs that do not

s
nt
vary with production level or sales revenue.

de
tu
ii. Variable costs vary directly with the level of

rS
production.

da
ai
H
iii. Total costs consist of the sum of the fixed and

A.
variable costs for any given level of

r.
D
production.
r
fo
D

iv. Average cost is the cost per unit at that level

TE

of production; it equals total costs divided by

IC
TR

production.
ES
R

© Dr. A. Haidar FALL 17-18

 8
Activity-Based Accounting (ABC)

-1
17
LL
FA
• Estimation of the real profitability of dealing with

@
s
different retailers,

nt
de
tu
• ABC accounting tries to identify the real costs

rS
da
associated with serving each customer.

ai
H
A.
r.
• The key to effectively employing ABC is to define
Dr
fo
and judge “activities” properly.
D
TE

• Clerical, office expenses, services etc..

IC
TR
ES
R

© Dr. A. Haidar FALL 17-18

 Accumulated cost

8
-1
17
LL
FA
• Accumulated production reduces costs; the experience

@
curve or learning curve improves processes

s
nt
de
tu
rS
• Aggressive pricing might give the product a cheap image

da
ai
or assume competitors are weak followers.

H
A.
r.
Dr
fo
D
TE
IC
TR
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© Dr. A. Haidar FALL 17-18

 8
Fig. 16.3 Cost per Unit as a Function of Accumulated

-1
17
Production: The Experience Curve Figure

LL
FA
@
s
nt
de
tu
rS
or Learning

da
ai
H
A.
r.
Dr
fo
D
TE
IC
TR
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© Dr. A. Haidar FALL 17-18

 Accumulated cost

8
-1
17
LL
FA
• Costs change with production scale and experience.

@
s
nt
de
• Cost change as a result of a concentrated effort by

tu
rS
designers, engineers, and purchasing agents to reduce

da
ai
them through target costing.

H
A.
r.
Dr
fo
• Cost cutting cannot go so deep as to compromise the
D
TE

brand promise and value delivered.

IC
TR
ES
R

© Dr. A. Haidar FALL 17-18

 8
-1
Experience-curve pricing

17
LL
FA
 It carries major risks.

@
s
nt
de
 Aggressive pricing might give the product a cheap image.

tu
rS
da
ai
H
 The strategy assumes that competitors are weak followers.

A.
r.
Dr
fo
 Most experience-curve pricing has focused on manufacturing
D
TE

costs, but all costs can be improved on, including marketing

IC
TR

costs
ES
R

© Dr. A. Haidar FALL 17-18

 8
-1
Target Costing

17
LL
FA
 Costs as a result of a concentrated effort by

@
s
nt
designers, engineers, and purchasing agents to

de
tu
reduce them through target costing.

rS
da
ai
 The objective is to bring the final cost projections into

H
A.
the target cost range.

r.
Dr
fo
 Cost cutting cannot go so deep as to compromise the
D
TE

brand promise and value delivered.

IC
TR
ES
R

© Dr. A. Haidar FALL 17-18

 Overly aggressive cost-cutting actions resulted in

8
-1
declines in perceived quality for the PT Cruiser,

17
LL
helping to contribute to the brand's demise.

FA
@
s
nt
de
tu
rS
da
ai
H
A.
r.
Dr
fo
D
TE
IC
TR
ES
R

© Dr. A. Haidar FALL 17-18

 Step 4: Analyzing Competitors’ Costs,

8
-1
17
Prices, and Offers

LL
FA
@
 The firm should first consider the nearest competitor’s price.

s
nt
• The firm’s should evaluate the worth of features

de
tu
rS
offered or not offered by the nearest competitor. (add

da
ai
or subtract the value of features from price).

H
A.
r.
• The firm can decide whether it can charge more, the
Dr
fo
same, or less than the competitor.
D
TE
IC
TR
ES
R

© Dr. A. Haidar FALL 17-18

 Step 4: Analyzing Competitors’ Costs,

8
-1
17
Prices, and Offers

LL
FA
@
s
 The introduction of any price or the change of any existing

nt
de
tu
price can provoke a response from customers, competitors,

rS
distributors, suppliers, and even the government.

da
ai
H
 Firms should watch Value-priced competitors.

A.
r.
D
 The firm can decide whether it can charge more, the same,
fo
r
D

or less than the competitor.

TE
IC
TR
ES
R

© Dr. A. Haidar FALL 17-18

 8
-1
Step 5: Selecting a Pricing Method

17
LL
FA
@
i. Markup pricing

s
nt
de
ii. Target-return pricing

tu
rS
iii. Perceived-value pricing

da
ai
H
iv. Value pricing

A.
r.
v. Going-rate pricing
Dr
fo
vi. Auction-type pricing
D
TE
IC
TR
ES

Fig. 16.4: The Three Cs

R

Model for Price Setting

© Dr. A. Haidar FALL 17-18
 8
-1
Mark up pricing

17
LL
FA
@
s
nt
 UNIT COST = variable cost + Fixed cost

de
tu
unit sales

rS
da
ai
H
 Mark up price = Unit cost

A.
r.
1- desired return on sale
Dr
fo
D
TE
IC
TR
ES
R

© Dr. A. Haidar FALL 17-18

 8
-1
Target-Return Pricing

17
LL
FA
• The firm determines the price that yields its target rate

@
s
nt
of return on investment. (20% ROI)

de
tu
rS
da
• The target-return price is given by the following

ai
H
A.
formula:

r.
unit cost + desired return x invested capital

D
• Target-return price = fo
r
D
unit sales
TE
IC
TR
ES
R

© Dr. A. Haidar FALL 17-18

 8
-1
Figure 16.5 Break-Even Chart

17
LL
FA
@
s
nt
de
tu
rS
da
ai
H
A.
r.
Dr
fo
D
TE
IC
TR
ES
R

© Dr. A. Haidar FALL 17-18

 8
-1
Perceived Value Pricing

17
LL
FA
• Companies base their price on the value promised by their value proposition,

@
and the customer must perceive this value or image of the product performance,

s
nt
the channel deliverables, the warranty quality, customer support, and softer

de
tu
attributes such as the supplier’s reputation, trustworthiness, and esteem

rS
 Buyer’s image of the product performance

da
 Channel deliverables

ai
H
 The warranty quality

A.
 Customer support

r.
D
 Supplier’s reputation
r
fo
 Trustworthiness
D
TE

 Esteem
IC

• The key to perceived-value pricing is to deliver more value than the competitor
TR

and to demonstrate this to prospective buyers.

ES
R

© Dr. A. Haidar FALL 17-18

 8
-1
Perceived Value Pricing

17
LL
FA
@
s
nt
de
tu
rS
da
ai
H
A.
r.
Dr
fo
D
TE
IC
TR
ES
R

© Dr. A. Haidar FALL 17-18

 8
-1
Value Pricing

17
LL
FA
 Companies win loyal customers by charging a fairly low

@
price for a high-quality offering.

s
nt
 Value pricing is not a matter of simply setting lower

de
tu
prices.

rS
da
 It is a matter of reengineering the company’s

ai
H
operations to become a low-cost producer without

A.
r.
sacrificing quality.
Dr
fo
 Lowering pricings significantly helps to attract a
D
TE

large number of value-conscious customers.

IC
TR
ES
R

© Dr. A. Haidar FALL 17-18

 8
Everyday low pricing (EDLP)

-1
17
LL
FA
@
s
• EDLP charging a constant low price with little or no price

nt
de
tu
promotion or special sales.

rS
da
ai
H
A.
• High-low pricing, the retailer charges higher prices on an

r.
Dr
fo
everyday basis but runs frequent promotions with prices
D
TE

temporarily lower than the EDLP level.

IC
TR
ES
R

© Dr. A. Haidar FALL 17-18

 8
-1
Going-Rate Pricing

17
LL
FA
@
 Firms base prices largely on competitor’s prices, follows

s
nt
de
the market leader.

tu
rS
da
 Firms might charge the same, more, or less than major

ai
H
competitor (s).

A.
r.
Dr
fo
 Going-rate pricing is quite popular where costs are
D
TE

difficult to measure or competitive response is uncertain.

IC
TR
ES
R

© Dr. A. Haidar FALL 17-18

 8
-1
Auction-Type Pricing

17
LL
FA
• Growing more popular, (electronic marketplaces selling everything).

@
• These are the three major types of auctions

s
nt
de
tu
rS
i. English auctions (ascending bids)

da
ai
English auctions are used today for selling antiques, cattle, real estate, and used

H
equipment and vehicles.

A.
r.
Dr
ii. Dutch auctions (descending bids.
fo
D

business-to-business auctions to help companies acquire low-priced items

TE
IC
TR

iii.Sealed-bid auctions (governments)

ES
R

© Dr. A. Haidar FALL 17-18

 8
Auction-Type Pricing

-1
17
LL
FA
• English auctions (ascending bids) have one seller and many buyers. On sites

@
such as eBay and Amazon.com, the seller puts up an item and bidders raise

s
their offer prices until the top price is reached.

nt
de
• English auctions are used today for selling antiques, cattle, real estate, and

tu
used equipment and vehicles.

rS
da
ai
• Dutch auctions (descending bids) feature one seller and many buyers or one

H
A.
buyer and many sellers. In the first kind, an auctioneer announces a high price

r.
for a product and then slowly decreases the price until a bidder accepts. In the

D
other, the buyer announces something he or she wants to buy, and potential
r
fo
sellers compete to offer the lowest price.
D
TE

• business-to-business auctions to help companies acquire low-priced items

IC
TR

• Sealed-bid auctions let would-be suppliers submit only one bid; they cannot
ES

know the other bids. (governments)

R

© Dr. A. Haidar FALL 17-18

 8
-1
Step 6: Selecting the Final Price

17
LL
FA
@
s
nt
de
tu
i. Impact of other marketing activities

rS
da
ii. Company pricing policies

ai
H
iii. Gain-and-risk sharing pricing

A.
r.
iv. Impact of price on other parties
Dr
fo
D
TE
IC
TR
ES
R

© Dr. A. Haidar FALL 17-18

 8
-1
Price-Adaptation Strategies

17
LL
FA
@
Geographical Pricing

s
nt
de
tu
rS
Discounts/Allowances

da
ai
H
A.
Promotional Pricing

r.
Dr
fo
D

Differentiated Pricing
TE
IC
TR
ES
R

© Dr. A. Haidar FALL 17-18

 8
-1
Price-Adaptation Strategies

17
LL
FA
• Companies develop a pricing structure that

@
s
reflects variations in:

nt
de
tu
i. geographical demand and costs,

rS
da
ii. market-segment requirements,

ai
H
iii. purchase timing,

A.
r.
iv. order levels,
Dr
fo
v. delivery frequency,
D
TE

vi. guarantees,
IC
TR

vii. service contracts, and other factors.

ES
R

© Dr. A. Haidar FALL 17-18

 8
-1
Price-Adaptation Strategies

17
LL
FA
 how to price its products to

@
s
nt
different customers in

de
Countertrade

tu
different locations and

rS
• Barter

da
countries.

ai
• Compensation deal

H
A.
• Buyback arrangement

r.
 how to get paid in the
D
fo
r • Offset
absence of sufficient hard
D
TE

currency
IC
TR
ES
R

© Dr. A. Haidar FALL 17-18

 In the early days of its entry into the Russian market,

8
-1
PepsiCo used an offset agreement with the Russian

17
LL
government involving a swap of cola syrup for vodka.

FA
@
s
nt
de
tu
rS
da
ai
H
A.
r.
Dr
fo
D
TE
IC
TR
ES
R

© Dr. A. Haidar FALL 17-18

 8
-1
Price-Adaptation Strategies

17
LL
FA
@
s
nt
de
tu
rS
da
ai
H
A.
r.
Dr
fo
D
TE
IC
TR
ES
R

© Dr. A. Haidar FALL 17-18

 8
-1
Promotional Pricing Tactics

17
LL
FA
@
s


nt
Loss-leader pricing

de
tu
 Special-event pricing

rS
da
 Cash rebates

ai
H
 Low-interest financing

A.
r.
 Longer payment terms
Dr
fo
 Warranties and service contracts
D
TE

 Psychological discounting
IC
TR
ES
R

© Dr. A. Haidar FALL 17-18

 8
-1
Differentiated Pricing

17
LL
FA
@
s


nt
Customer-segment pricing

de


tu
Product-form pricing

rS


da
Image pricing

ai
H
 Channel pricing

A.
r.
 Location pricing
Dr
fo
 Time pricing
D
TE
IC
TR
ES
R

© Dr. A. Haidar FALL 17-18

 8
INITIATING AND RESPONDING TO PRICE

-1
17
CHANGES

LL
FA
@
s
nt
• Companies often face situations when they

de
tu
rS
may need to cut or raise prices.

da
ai
H
A.
r.
Dr
fo
D
TE
IC
TR
ES
R

© Dr. A. Haidar FALL 17-18

 8
-1
Initiating Price Cuts

17
LL
FA
• Several circumstances might lead a firm to cut prices:

@
• Excess plant capacity

s
nt
• Companies may initiate a price cut in a drive to dominate the

de
tu
market through lower costs.

rS
• Either the company starts with lower costs or initiates price cuts

da
ai
in hope of gaining market share and lower costs.

H
A.
• A price-cutting strategy involves possible traps:

r.
D
• Low-quality trap
r
fo
D

• Fragile-market-share trap
TE
IC

• Shallow-pockets trap
TR
ES
R

© Dr. A. Haidar FALL 17-18

 8
-1
Initiating and Responding to Price Changes

17
LL
FA
@
• Initiating Price Increases

s
nt
de
• Cost inflation

tu
rS
• Anticipatory pricing

da
ai
• Overdemand

H
A.
• Delayed quotation pricing
r.
• Dr
fo
Escalator clauses
D
TE

• Unbundling
IC
TR

• Reduction of discounts
ES
R

16-80
Initiating and Responding to Price Changes

8
-1
17
LL
FA
Possible responses to higher costs or overhead without

@
raising prices include:

s
nt
de
• Shrinking the amount of product instead of raising the price

tu
rS
• Substituting less expensive materials or ingredients

da
ai
• Reducing or removing product features

H
A.
• Removing or reducing product services, such as installation or

r.
D
free delivery
r
fo
D

• Using less expensive packaging material or larger package sizes

TE
IC

• Reducing the number of sizes and models offered

TR
ES

• Creating new economy brands

R

16-81
 8
-1
Initiating and Responding to Price Changes

17
LL
FA
• Reactions to Price Changes

@
s
• Customer Reactions

nt
de
• Competitor Reactions

tu
rS
• Responding to Competitors’ Price Changes

da
ai
• Maintain price

H
A.
• Maintain price and add value

r.
Dr
• Reduce pricefo
D

• Increase price and improve quality

TE
IC

• Launch a low-price fighter line

TR
ES
R

16-82
 8
Price-Reaction Program for Meeting a Competitor’s Price Cut

-1
17
LL
FA
@
s
nt
de
tu
rS
da
ai
H
A.
r.
Dr
fo
D
TE
IC
TR
ES
R

16-83