UNIVERSITY OF

GONDAR
COLLEGE OF BUSINESS AND ECONOMICS
DEPARTMENT OF MARKETING MANAGEMENT
Course :pricing and brand management

(basic pricing framework, psychology of pricing, and

pricing strategies)
Presented by: Legese Lemma

Introduction
Marketing is function of setting right product or
service, the right people, at the right time, place, and the
right price with right communication and promotion.
Marketing is organizational function and set of
processes for creating ,communicating and delivering
value to the customers and managing relationship with
customers in a way that benefit the organization and its
stakeholders
Marketers develop three marketing mix elements that
bear costs to them but pricing is the only element that
generates income.

CONTd
Marketing mix elements is about combination and
coordination of marketing program/ instruments that
helps to build brand equity.
which are used to achieve the marketing goals of
business for specific target market.
Brand equity is consumer brand knowledge.
In the eyes of consumers price seen as the expression
for perceived quality and brand loyalty that directly
affects brand equity.
Marketers need to actively manage the role of price
in the equity of their brands.

Contd
Price will affect brand perceptions; marketers need
to shape those effects.
Pricing is the marketing lever with the most
immediate and direct business impact.
Management decisions to change prices translate into
revenue and profit.
Also is closely tied to the other elements of brand
strategy.
Effective brand marketing can give consumers
compelling reasons to pay a premium

Contd
customer based brand equity results in:
Greater revenue , higher profit, and lower costs.
firms ability to command higher price.
customers willingness to seek out new distribution
channels.
the effectiveness of marketing communications, and the
success of brand extensions and licensing opportunities.
Consumers use price as a significant
extrinsic cue and signal of product quality or
benefits of the brand.
Positive

Definition
Price can be defined as the amount of money that a consumer
must part with to get access to a product or service or Brand.
Price is just not a product of the sum of the raw materials and
labor plus a profit margin for the producer.
Price is also related to certain intangible attributes, namely
quality and value.
It includes all of the pricing related matters such as the retail
prices, volume discounts, and terms of payment, seasonal
discounts, and credit terms.
Price is the amount of money or goods for which a thing is
bought or sold.

Cont
Price is what a customer have to pay to acquire a product, or
cost of a product to a customer.
Price is considered to be the most significant factor that
affects consumers choice of brand or product.
Price is the amount the consumer must exchange to receive
the offering.
The price refers to the price that consumer will eventually
pay for the product.
Price is the amount the consumer must exchange to receive
the offering that provided by marketers.
The price is in the economic approach based on the total cost
of manufacturing the product, the distribution and
advertising cost including direct and indirect production
cost and competitive analysis.

Contd
Marketing mix is, hence, that attributes related to the
Four Ps are the main mechanisms behind the
creation and management of brand equity.
Brand managers are assumed to be able to control
consumers brand choice behavior by ensuring an
optimum mix between the four main elements of the
marketing mix.
This 4ps, key instrument for understanding and
facilitating transactions between the company and the
market.

Definition and concepts

Brand will succeed only if the manufacturer of that brand is
able to produce a product that delivers high utility benefits.
Sells it at the right price, in the right places, and promotes.
Thus 4Ps, key denominators of a brands success.
The price factor of the marketing mix is closely linked with
the marketing mix factor of promotion.
Pricing is just as important to brand equity as other
differentiators, because it is a source of meaning and identity.
Price is the amount of money that is charged for something
of value. Fees, tuition, rent, and interest are all examples of
price.

Contd
A solid pricing strategy can have a positive effect on brand equity, while a poor
strategy can do the opposite.
The various types of pricing strategies include:

Premium pricing strategies

Penetration pricing strategy
Everyday low pricing(EDLP) strategy
Product mix pricing strategy
Geographical and international pricing strategy
Psychological and promotional pricing strategy
Discounts and allowances pricing strategy

Finding the right pricing strategy is vitally important for the brand equity of
your business.
Consumers willing to pay premium price when there is perceived added
value= strong brands.

Basic pricing framework

Setting prices

Sell the right product, right price, is better to meet consumer

needs.

Pricing strategies affected by and what to considered during price

setting

Cost of producing the product

Needs and wants of consumers
Price of competitive products
Profit margin of the company
pricing strategy should be greater emphasize on end consumers of brand.
Demand consideration

Steps to set better pricing

A.
B.
C.
D.
E.
F.
G.
H.

Assess what value the customers places on your brand.

Look for variation in assessing customers.
Assess customer value price sensitivity.
Identify optimal pricing structure.
Consider competitors reaction.
Assess price at transaction level.
Analyze customer emotional response.
Analyze if returns are worth the cost(compare cost vs.
revenue).

Price setting strategies

Value pricing
Product design and delivery
Innovation,

material substitution, technology, factory improvements.

Product cost:
Understand

what consumers willing to pay, if there are premiums , then adjust if for cost and

competition.
Every day low pricing
Discount and promotion over time.
Build brand awareness through consistent low price on major items will bring consumers to
back to buy.
creates customer loyalty.
Incentives to consumers to buy your brand

Pricing strategies and Brand value fundamentals

Price charged for the product must match the value the
consumers perceive and holds about that brand or product.
Effective branding allows premium branding products to sell
at a premium price.
The market will bear that price and consumers will pay brand
or product.
Product or brand with high tangible differentiation to be
higher price.
Tangible differentiation can cause price difference across
different brands in the same category and across d/t brand
under same brand umbrella category.
Price just part one part of brand value and purchase
decisions

How brand and price related

Marketing mix
Product
Price
Promotion
Place

brand description

brand strength

C/advantage
Market power
Brand value
Added value
Profit

Price as a component of the marketing mix can be

manipulated that then compliments the brand description.

which in turn builds brand strength and results in competitive

advantage.

key inputs for the pricing

decision

Company and marketing objectives;

Cost considerations;
Competitor considerations
Demand considerations: This factor also affected by:
Price of other products
Attributes of the product
Tastes of the buyer

Price level and price setting

Price level be set in a way that support and advances broader marketing
objectives of the firm.
Price setting is challenging task it requires Collection and analyses of
information about:

The corporate business goals.

Inline with overall business strategies (advanced with sales strategy
and reinforce the whole business strategy).

Cost structure and competition.

Customer preference and needs.

It should consider customer response to new price and better to
consider non- value related factors that affect customer response.
Price- volume trade-offs
Trade offs between volume and sales and contribution margin .

Setting price boundaries

Prices as delineated by boundaries.

Disproportionately perceive items priced either side of a
boundary.
Two important aspects are:
Prices are restricted to ranges of established norms outside of
the brands control & constrained by the consumers
expectations.
The price range is a subjective analysis of the competitive
landscape from the brands perspective.

Market boundaries are also driven by factors such

as price sensitivity, product performance and
social desirability.

Establishing initial price

Steps in setting price right price

Establish pricing goals/objectives
Estimate demand, costs, and profits
Choose a price strategy
Fine tune with pricing tactics
Results lead to the right price
To

introduce a new product, two methods may be

used: are most often encountered when dealing with
new products

Penetration

strategy
skimming strategy

Price volume trade-off, price elasticity

Is relationship between changes in price and volume.

Economic theory indicates that price found at the point on the demand curve
MR=MC but ,this assumption is difficult because many factors that affect MR
dependent on multiple factors includes:

competition response and market size increase

visibility of price increase in the market etc.

Financial trade-off b/n price and volume and the question here is:

How much volume could I afford to lose before a particular

price increase would be unprofitable?

How much volume would I have to gain in order for a particular

price decrease to improve my profitability?

Low price , high volume sales or high price low volume sales.

Goal is to capture more revenue from sales.

Price sensitivity
How strongly will your customers react to price change of yours brand or
product.
High price sensitivity or price elasticity of demand means a relatively
small change in price will drive a big change in demand and opposite is true.
In case of Low price sensitivity , lowering price means risky it in the case
of highly differentiated and branded products and in case your customers are
less driven by price.
Commodity/not highly differentiated product, then your customers are
relatively to be highly price sensitive.
Customer-driven pricing
Underlying concept here is understanding the value of the product to satisfied
customers and communicate that value to others.
Customer oriented pricing strategy

Customers

values

price

costs

products .

Price is set based on customer led or customers' willingness-to-pay to a level

that better reflects the product's true value.

Psychology of pricing
Pricing strategies and measures not designed in vacuum and their
effectiveness depends on deep understanding of consumer motivations and
behaviors and perception about firms product/brands.
It is essential to measure consumer response to price changes/actions.
Consumer perception of price differs according to his/her valuing to the price
of product.
Buyers psychology tends to keep them in the middle of the pack they dont
want to pay too much, yet they dont want the least expensive product either.
Based on this behavioral pattern, brands that offer a midrange product can capture a larger portion of the market.
Many consumers trade up to a higher-priced product that is
perceived as a better value.

Companies should also consider gain-loss framing when pricing their

products/brands.
Consumer favor product/ brand that comes with no negative
psychological outcome.

Perceptual challenge
Consumers believe that high pricing enhances brand image
and conversely low pricing affects brand image. Based on
price-quality relationship.
The perception of the value of a product varies from customer
to customer based on cost and benefit value.
Consumers expect more value from a high priced brand and
less from a low priced brand.
Consumer's perception of product quality is related closely to
the brands price.
The higher the price of the product, then the better its
perceived quality of brand and opposite is true.
High priced/expensive brands have better imag.

Prospect theory
How and why people make decisions and how brands and product affects
the consumer decision making.
Based on CDMP.
Most decisions made by consumers are not straight forward but complex in
nature and made under condition that confusing and frightening.
This theory postulates that, the outcome of decision-making under
conditions of gains and losses is not symmetrical. Prospect theory has
wide ranging marketing implications:
How an advertising message is framed.
How a new product is positioned.
How brand awareness increased in the consumer mind.
How a product is priced relative to the competition.
How a product is priced and the premium a consumer is WTP.
What markets will respond to what types of offer.

Theory states that people make decisions based on the potential

value of losses and gains rather than the final outcome.

Price and value communication

It also defined as the maximum amount a customer should be willing to

pay, assuming full information about the product/brand and competitive
offerings and brands.

Defined as perceived worth in monetary units of the set of economic,

technical, service, and social benefits received by a customer firm in
exchange for the price paid for a product.

Value communication is effective to the extent that buyers see the price as
economically important.

Value communication involves communicating credibly, in monetary

terms, the differentiating benefits of your product or brand.

A successful pricing strategy must justify the prices charged in terms of

the value of the benefits provided

Developing price value communication is difficult task for marketers.

Objective is raise customers WTP. for the they receive.

Contnd

Four aspects of price perceptions and their implication for price communication

Proportional price evaluations: buyers tend to evaluate price d/ces

proportional rather than absolute term. Implication: price change
perception depend on the percentage not on the absolute difference.
II. Reference price: is what buyers consider reasonable and fair price
for product.
This is critical issue in product line pricing decision (implication).
III. Perceived fairness: is concept of fair price for the product or brand
has believed marketers for. Totally unrelated to demand and supply.
V. Gain-loss framing: finally pricing communication involves how price
presented to customers , who tend to evaluate price interims of gainloss from expected point. People place more importance on
psychological benefit.
I.

PART III .PRICING STRATEGIES

Strategic pricing: coordination of other wise independent activities to achieve

common objectives and its aim is to achieve profitability.
It requires translating the differential benefits of your brand or products into
customer perceptions of fair premium for these benefits.
Pricing strategy has become one of the most important features of modern marketing
and its significant implication for brands.
Prices and volume sold determine the revenue received by the firm and influence
its profits. TR=P*Q and Profit= TR-TC.
Successful pricing strategies embodies three things: Value based, proactive , and
profit driven principles.
There are five types of base pricing setting methods according to Philip kotler et al
(2005) and Nagle and Hagan (2006).
Cost based pricing strategy
Break-even pricing strategy
Competition-based pricing
Demand pricing strategy
Customer-value based pricing

The strategic importance and role of pricing

Price has many possible uses as a strategic instrument in

business strategy.
The vital importance of pricing decisions argues strongly for
cross-functional participation.
Coordination of strategic and tactical pricing decisions
with other aspects of marketing strategy is also critical
because of the marketing program inter-relationships
involved and it should developed based on the following
perspective.
Price in positioning strategies
Price in product strategies
Price in channel distribution strategies

Strategic role of pricing

Pricing

plays an important strategic role in marketing strategy.

Strategic choices about product decision, branding , positioning , market
targets, positioning strategies, and products and distribution strategies set
guidelines for both price and promotion strategies.
Specifically it have following roles:

Signal to buyers
Communicating with buyers, provides basis for comparison of brands, and used to
position product as high quality.

Instrument of communication

Offers way to quickly attack competitors and helps to position firm away from direct
competition.
Whether firm uses low , high, or equal price it is always related to competition.

Improvement in financial performance

Costs and price determines firms financial performance and both costs and revenues to
be considered.

Marketing program consideration

Price as substitute for selling effort , advertisement, and sales promotion.

Pricing objectives and their R/ship with overall business

strategies

Marketing attempts to accomplish certain objectives through its pricing

decisions.
Pricing strategies varies from firm to firm.
The multiple pricing objectives are common among many firms and are follows:

To gain market position

To achieve financial performance
Product /brand positioning
Stimulate demand for firms product/brands
Influence competition
Profitability objectives
Volume objectives /market share objective.
The pricing strategy needs to be coordinated with the
development of the entire marketing program since in most, if not
all, instances there are other important marketing program
component influences on buyers' purchasing behavior.

Contd
Choice of specific pricing strategies and objectives affected by
cost ,demand, and competitive factors.
Pricing for new products
Penetration pricing strategy
Price skimming strategy
Several factors may affect the choice of a pricing approach for a
new product including:
The cost and life span of the product.
The estimated responsiveness of buyers to alternative prices.
And assessment of competitive reaction.
A decision should also be made about how visible
price will be in the promotion of the new product.

Strategic pricing deals with long term goals of firm while,

tactical pricing deals with short term goals of firms product or
brand. This pricing approach also called special pricing tactics.
Single-price tactic: all goods offered at the same price.
Flexible pricing: different customers pay different price.
Professional services pricing: used by professionals with experience, training
or certification.
Price lining: several line items at specific price points.
Leader pricing: sell product at near or below cost.
Bait pricing: lure customers though false or misleading price ads.
Odd-even pricing: odd-number prices imply bargain; even-number prices
imply quality
Price bundling: combining 2 or more products in a single package
2-part pricing: 2 separate charges to consume a single good

Others strategic pricing considerations

Price/quality relationships
Psychological pricing
Odd pricing
Price and perceptions of quality
Price and social status

THE END
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