1. Fundamental Of Marketing
MKT243
Chapter 12
Setting the Right Price
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2. Slide Outline
• How to set a price on a product
• The legality and ethics of price strategy
• Tactics for fine tuning the base price
• Product line pricing
• Pricing during inflation and recession
• Price adjustment strategy
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3. The 4-step of Setting the Right Price
Establishing Pricing Goals
Estimate Demand, Cost
and Profits
Choose a price strategy
Fine tune the base price
With pricing tactics
Result lead to
The right price
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4. The 4-step of Setting the Right Price
1. Establishing pricing goals
-Setting specific goals (objective: Profit-
oriented, Sales-oriented or Status quo)
-All pricing objectives have trade-offs
that managers must weight.
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5. The 4-step of Setting the Right Price
2. Estimate demand, costs, and profit
-Estimating total revenue at a variety
level of prices, determine, determine
costs for each price, then estimate
how much profit and how much
market share can be earned.
-3 basic approaches of price strategy
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6. The 4-step of Setting the Right Price
3. Choose a Price Strategy
-Price strategy-A basic, long-term pricing
framework, which established the initial
price for a product and the intended
direction for price movements over the
product life cycle
-Setting a competitive price in a specific
market segment
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7. The 4-step of Setting the Right Price
Pricing Strategies
a) Price Skimming
Market-skimming pricing is a strategy with high initial prices
to “skim” revenue layers from the market
The company charges a high introductory price due to the
heavy promotion
Also known as “market-plus” approach
Provided that:
• Product quality and image must support the price
• Buyers must want the product at the price
• Costs of producing the product in small volume should not
cancel the advantage of higher prices
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• Competitors should not be able to enter the market easily
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8. The 4-step of Setting the Right
Price
b) Penetration Pricing
Pricing Strategies
Market-penetration pricing sets a low initial price in
order to penetrate the market quickly and deeply
to attract a large number of buyers quickly to gain
market share
The company charges a relatively low introductory
price for a product to reach a mass market and to
attract large number of buyers
Provided that:
• Price sensitive market
• Inverse relationship of production and distribution
cost to sales growth
• Low prices must keep competition out of the
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9. The 4-step of Setting the Right
Price
Pricing Strategies
c) Status Quo Pricing
Status Quo pricing is charging the customer
with price that are identical to every close
competition’s price.
Also know as meeting the competitor or
Going Rate Pricing
Advantages-Simple
Disadvantages-This strategy may ignore
demand or cost or both
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10. Pricing Objectives vs. Pricing
Strategy
Profit Oriented
Profit Oriented
Sales Oriented
Sales Oriented OBJECTIVES
Status Quo Oriented
Status Quo Oriented
Price Skimming
Price Skimming
Penetration Pricing
Penetration Pricing STRATEGIES
Status Quo Pricing
Status Quo Pricing
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11. The Legality and Ethics of Price Strategy
Unfair Trade Practices
Unfair Trade Practices
Price Fixing
Price Fixing
Price Discrimination
Price Discrimination
Predatory Pricing
Predatory Pricing
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12. Legality & Ethics of Price
Strategy
i. Unfair trade practices
-‘Unfair trade practice acts’ prohibit wholesaler
and retailers from selling a product below cost
-Reason-to protect small local firms from giant
company.
ii. Pricing Fixing
-An agreement between 2 or more firms on the
price they will charge for a product
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13. Legality & Ethics of Price
Strategy
iii. Price Discrimination
-Offering different prices buyers and
giving different supplementary services
for different buyers.
iv. Predatory Pricing
A tactics that charging a very low price
for a product with the intent of driving
competitors out of business or out of a
market
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14. Robinson-Patman Act
Defenses for seller to Charge Price
Discrimination
Seller Defenses
Seller Defenses
Market
Market
Cost
Cost Competition
Competition
Conditions
Conditions
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15. The 4-step of Setting the Right Price
4. Fine-tune the base price with pricing
tactics
-Fine tuning techniques are short-run
approaches to adjust the base price for
competition, to cater unique demand and
meet promotional and positioning goals.
-Include various sorts of discount,
geographic pricing and other pricing
tactics
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16. Tactics for Fine-Tuning the Base
Price
Discounts, Allowances,
Discounts, Allowances,
Rebates & Value-based pricing
Rebates & Value-based pricing
Geographic pricing
Geographic pricing
Special pricing tactics
Special pricing tactics
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17. Discount, Allowances, rebate and
Value Based Pricing
• Quantity discount
• Cash Discount
• Functional discount/ trade discount
• Seasonal discount
• Promotional allowance/ trade allowances
• Rebates
• Zero percent financing
• Value base pricing
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18. Geographic Pricing
FOB origin pricing
FOB origin pricing
Uniform delivered
Uniform delivered
pricing
pricing
Zone pricing
Zone pricing
Freight absorption
Freight absorption
pricing
pricing
Basing-point
Basing-point
pricing
pricing
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19. Special Pricing Tactics
Single-Price Tactic
Single-Price Tactic Odd-Even Pricing
Odd-Even Pricing
Flexible Pricing
Flexible Pricing Bundling
Bundling
Professional Services
Professional Services (Unbundling)
(Unbundling)
Price Lining
Price Lining Two-Part Pricing
Two-Part Pricing
Leader Pricing
Leader Pricing
Bait Pricing
Bait Pricing
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20. Pricing During Difficult Economic
Times
Cost-Oriented Tactics
Cost-Oriented Tactics
High Inflation
High Inflation
Demand-Oriented Tactics
Demand-Oriented Tactics
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21. Supplier Strategies During Recession
Renegotiating contracts
Renegotiating contracts
Offering help
Offering help
Keeping the pressure on
Keeping the pressure on
Paring down suppliers
Paring down suppliers
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Notas do Editor
Note to Instructor The text gives an excellent example of IKEA in China: When IKEA first opened stores in China in 2002, people crowded to take advantage of the freebies—air conditioning, clean toilets, and even decorating ideas. Chinese consumers are famously frugal. When it came time to actually buy, they shopped instead at local stores just down the street that offered knockoffs of IKEA’s designs at a fraction of the price. So IKEA slashed its prices in China to the lowest in the world. The penetration pricing strategy worked. IKEA now captures a 43 percent market share of China’s fast-growing home wares market.
Note to Instructor The text gives an excellent example of IKEA in China: When IKEA first opened stores in China in 2002, people crowded to take advantage of the freebies—air conditioning, clean toilets, and even decorating ideas. Chinese consumers are famously frugal. When it came time to actually buy, they shopped instead at local stores just down the street that offered knockoffs of IKEA’s designs at a fraction of the price. So IKEA slashed its prices in China to the lowest in the world. The penetration pricing strategy worked. IKEA now captures a 43 percent market share of China’s fast-growing home wares market.