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6

PRICING
Understanding and Capturing

Customer Value

Price
Price
The amount of money charged for a product or
service. It is the sum of all the values that
consumers exchange for the benefits of having
or using the product or service.
Price and the Marketing Mix:
The only element to produce revenues; all other
elements represent costs
Most flexible element
Can be changed quickly

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Figure 9.1 - Considerations in


Setting Price

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Customer Value-Based
Pricing
Based on buyers perceptions of
value rather than on the sellers cost
Price is considered before the
marketing program is set.
Types of value-based pricing:
Good-value pricing
Value-added pricing

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Figure 9.2 - Value-Based Pricing


versus Cost-Based Pricing

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Competition-Based Pricing
Based on
competitors
strategies,
prices, costs,
and market
offerings

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Considerations Affecting
Pricing Decisions
Internal factors
Overall marketing strategy, objectives,
and mix
Organizational considerations

External factors
Nature of the market and demand
Economy
Parties in the external environment
Resellers, government, and social concerns
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Overall Marketing Strategy,


Objectives, and Mix
Pricing decisions must coordinate
with packaging, promotion, and
distribution decisions.
Positioning may be based on price.
Target costing: Start with an ideal
selling price, then targets costs that
ensure the price is met

Non-price positions can be created to


differentiate the marketing offer.
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Organizational
Considerations
Determine who should set the price
Varies depending on the size and
type of company
Small companies - Top management
Large companies - Divisional or product
managers
Industries with price as the key factor Pricing departments

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Pricing in Different
Types of Markets

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Figure 9.4 - Demand Curve

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Price Elasticity of Demand


Measure of the sensitivity of demand
to changes in price
Inelastic demand: Demand hardly
changes with a small change in price.
Elastic demand: Demand changes
greatly with a small change in price.

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Economy

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New Product Pricing


Strategies

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Table 9.1 - Product Mix


Pricing

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Table 9.2 - Price


Adjustments

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Discount and Allowance


Pricing
Discount pricing - Reducing prices to
reward customer responses such as
paying early or promoting the product
Cash, quantity, functional, and seasonal
discounts

Allowances: Paid by manufacturers to


retailers in return for an agreement to
feature the manufacturers products in
some way
Trade-in and promotional allowances
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Segmented Pricing
Selling a product or service at two or
more prices, where the difference in
prices is not based on differences in
costs
Forms of segmented pricing:

Customer-segment pricing
Product form pricing
Location-based pricing
Time-based pricing
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Psychological Pricing
Considers the psychology of prices
and not simply the economics
Price says something about the
product.

Reference prices: Prices that


buyers carry in their minds and refer
to when looking at a given product

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Promotional Pricing
Temporarily pricing products below
the list price to increase short-run
sales
Forms of promotional pricing:
Discounts and special-event pricing
Limited-time offers and cash rebates
Low-interest financing and longer
warranties
Free maintenance
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Geographical Pricing

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Dynamic and Internet


Pricing
Dynamic pricing: Adjusting prices
continually to meet the
characteristics and needs of
individual customers and situations
Prevalent online where Internet
introduces fluid pricing

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International Pricing

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Initiating Price Changes


Reasons for price cuts:
Excess capacity
Falling demand due to strong price
competition or a weakened economy
Attempt to dominate the market

Reasons for price increases:


Cost inflation
Over-demand
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Reactions to Price Changes

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Figure 9.5 - Assessing and


Responding to Competitor Price
Changes

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Figure 9.6 - Public Policy


Issues in Pricing

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