Ch 14 Developing Pricing Strategies And Programs- Manalang

TOP 10 Learning Questions for CHAPTER 14: DEVELOPING PRICING STRATEGIES AND PROGRAMS Antonieta Manalang September 23, 2010

1. The following are pricing mistakes except Determining costs and taking traditional industry margins Revising price to capitalize on market changes Setting price independently of the rest of the marketing mix Standardizing price by product item, market segment, distribution channels, and purchase occasion Setting various price objectives 1

Steps in Setting Price Select the price objective Determine demand Estimate costs Analyze competitor price mix Select pricing method Select final price 2 1

Steps in Setting Price Select the price objective (The clearer a firm’s objective, the easier it is to set price) Determine demand ( Setting of different prices by product item, market segment, distribution channels, and purchase occasion) Estimate costs (Companies must consider the product costs and utilize different pricing methods) Analyze competitor price mix (The company must take into account its competitors’ costs, prices, and possible price reactions) Select pricing method (The 3 considerations for pricing are the 3 C’s: Cost of Product, Customers and Competitors Select final price (Other factors to consider in pricing are: impact of marketing activities, company pricing policies, gain and risk sharing pricing, and the impact of price on other parties 3

1. The following are pricing mistakes except Determining costs and taking traditional industry margins Revising price to capitalize on market changes Setting price independently of the rest of the marketing mix Standardizing price by product item, market segment, distribution channels, and purchase occasion Setting various price objectives 4

2. ______ is a type of consumer pricing psychology wherein consumers tend to process prices in a “left-to-right” manner rather than by rounding, e.g. stereo amplifier priced at 299 instead $300 as a price in the $200 range rather than $300 range Price Cue Price ending Reference Price Lower Bound Price Price-quality inference 5

Consumer Psychology and Pricing Reference Prices Price-quality inferences Price endings Price cues 6 1

Consumer pricing psychology  how consumers arrive at their perceptions of price, the marketers must think of: Reference price : consumers get pricing information from internal reference price (used as habitual decision making) or external reference price (used as limited decision making and extended decision making) Price-quality inferences : many consumers use price as an indicator of quality. Image pricing is effective with ego-sensitive products. E.g perfumes, designer clothes Price cues: consumers tend to process prices in a “left to right” manner rather than by rounding e.g. stereo amplifier priced at 299 instead $300 as a price in the $200 range rather than $300 range Price endings: Prices that end with 0 and 5 are easier for consumers to remember 7

2. ______ is a type of consumer pricing psychology wherein consumers tend to process prices in a “left-to-right” manner rather than by rounding, e.g. stereo amplifier priced at 299 instead $300 as a price in the $200 range rather than $300 range Price Cue Price ending Reference Price Lower Bound Price Price-quality inference 8

3. Which of the following statement is FALSE in considering a pricing objective? Survival: Prices are lowered to ensure inventory turnover but price must cover variable costs & fixed costs. Maximum current profit: price is set to maximize current profit, cash flow, or ROI Maximum Market Skimming: Prices start low and increased overtime Maximum sales growth : low price is set assuming that marketing is price sensitive Marketing penetration pricing: Goal is high sales volume 9

Step 1: Selecting the Pricing Objective Survival Maximum current profit Maximum market share Maximum market skimming Product-quality leadership 10

5 Major Pricing Objectives Survival: if a firm sets prices covering variable cost and some fixed cost to face overcapacity, intense competition or changing consumer wants. Maximum current profit: if a firm has knowledge of its demand and cost function, price is set to maximize current profit, cash flow, or ROI Maximum market skimming: if a firm unveiling a new technology favor setting “higher price” as to communicate superior product but sales drop in the next future making the price low e.g. initially higher price for TV flat with billingual system Maximum market share (marketing penetration pricing) if a firm believes a higher sales volume will lead to lower unit cost and higher long run profit. They set “the lowest price” assuming the market is price sensitive. Goal is high sales volume Product-Quality Leadership: company brands strive to be “affordable luxuries”—products or services are characterized by high levels of perceived quality, taste, and status with a price just high enough not to be out of consumer’s reach 11

3. Which of the following statement is FALSE in considering a pricing objective? Survival: Prices are lowered to ensure inventory turnover but price must cover variable costs & fixed costs. Maximum current profit: price is set to maximize current profit, cash flow, or ROI Maximum Market Skimming: Prices start low and increased overtime Maximum sales growth : low price is set assuming that marketing is price sensitive Marketing penetration pricing: Goal is high sales volume 12

4. A behavior wherein a consumer prefers to buy an Armani shirt at $275 over a GAP shirt which costs $14.90 is an example of: Reference Price Price-quality inferences Price Cues Price endings 13

Consumer Psychology and Pricing Reference Prices Price-quality inferences Price endings Price cues 14 1

Consumer pricing psychology  how consumers arrive at their perceptions of price, the marketers must think of: Reference price: consumers get pricing information from internal reference price (used as habitual decision making) or external reference price (used as limited decision making and extended decision making) Price-quality inferences: many consumers use price as an indicator of quality. Image pricing is effective with ego-sensitive products. E.g perfumes, designer clothes Price cues: consumers tend to process prices in a “left to right” manner rather than by rounding e.g. stereo amplifier priced at 299 instead $300 as a price in the $200 range rather than $300 range Price endings: Prices that end with 0 and 5 are easier for consumers to remember 15

4. A behavior wherein a consumer prefers to buy an Armani shirt at $275 over a GAP shirt which costs $14.90 is an example of: Reference Price Price-quality inferences Price Cues Price endings 16

5. Which of the following statement is TRUE on factors to price sensitivity? Customers are more price sensitive to low-cost items or items they buy infrequently Buyers are less price sensitive when there are few are no substitutes Customers readily notice the price increases Customers easily changed their buying habits Customers think that higher prices for the items they buy infrequently are not justified 17

Step 2: Determining Demand Price Sensitivity Estimating Demand Curves Price Elasticity of Demand 18

Determining Demand- the demand curve shows the market’s probable purchase quantity at alternative prices. Price sensitivity- reactions of individuals who have different price sensitivities They are less price sensitive when: Prices increase to low-cost items or items they buy infrequently When there are few are no substitutes or competitors They do not notice the price increases They are slow to changed their buying habits The higher prices are justified 19

5. Which of the following statement is TRUE on factors to price sensitivity? Customers are more price sensitive to low-cost items or items they buy infrequently Buyers are less price sensitive when there are few are no substitutes Customers readily notice the price increases Customers easily changed their buying habits Customers think that higher prices for the items they buy infrequently are not justified 20

6. A company’s way of increasing the price by maintaining its price but removes or prices separately one or more elements that were part of the former offer, such as free delivery or installation Discount Reduction Unbundling Escalator clauses Delayed quotation pricing Anticipatory pricing 21

Initiating Price Increases Discount Reduction: the company instructs its sales force not to offer its normal cash and quantity discounts Unbundling: the company maintains its price but removes or prices separately one or more elements that were part of the former offer Escalator clauses: the company requires the customer to pay today’s price and all or part of any inflation increase that takes place before delivery Delayed quotation pricing: the company does not set a final price until the product is finished or delivered Anticipatory pricing- companies raise their prices by more than the cost increase, in anticipation of further inflation or government price controls 23

6. A company’s way of increasing the price by maintaining its price but removes or prices separately one or more elements that were part of the former offer, such as free delivery or installation Discount Reduction Unbundling Escalator clauses Delayed quotation pricing Anticipatory pricing 24

7. The following are price-adaptation strategies except Geographical pricing Price discounts and allowances Promotional Pricing Delayed quotation pricing Differentiated Pricing 25

Price-adaptation strategies are: Geographical pricing : the company decides how to price its products to different customers in different locations and countries Price discounts and allowances : most companies will adjust their list price and give discounts and allowances for early payment, volume purchases, and off-season buying Promotional Pricing : companies can use several pricing techniques to stimulate early purchases or attract customers attention such as loss leader pricing, special event pricing, longer payment terms Differentiated Pricing : companies often adjust their basic price in customer segment pricing (adult vs child), product form pricing (1 for $10, 2 for $15), location pricing and time pricing 27

7. The following are price-adaptation strategies except Geographical pricing Price discounts and allowances Promotional Pricing Delayed quotation pricing Differentiated Pricing 28

8. Companies do the following approaches to avoid price increase shock among consumers except Substituting less-expensive materials or ingredients Increasing the number of sizes and models offered Shrinking the amount of product Creating new economy brands Reducing or removing product features 29

Approaches companies do to avoid price increase shock among consumers are: Substituting less-expensive materials or ingredients Reducing the number of sizes and models offered Shrinking the amount of product Creating new economy brands Reducing or removing product features 31

8. Companies do the following approaches to avoid price increase shock among consumers except Substituting less-expensive materials or ingredients Increasing the number of sizes and models offered Shrinking the amount of product Creating new economy brands Reducing or removing product features 32

9. A pricing method wherein customers are charged of low price for a high-quality offering: Perceived-value pricing Target-return Pricing Mark-up Pricing Going Rate Pricing Value Pricing 33

Step 5: Selecting a Pricing Method Markup pricing Target-return pricing Perceived-value pricing Value pricing Going-rate pricing Auction-type pricing 34

Pricing Methods Perceived-value pricing : price is based on customer’s perceived value. Perceived value is made up of several elements such as the buyer’s image of product performance, the channel deliverables, the warranty quality, customer suppport, etc. Target-return Pricing : the firm determines the price that would yield its target rate of return on investment (ROI) Markup Pricing : adding a standard markup to the product’s cost Going Rate Pricing : price is based on competitor’s prices, charging the same, more, or less than major competitor(s) Value Pricing: charging low price for a high quality offering 35

9. A pricing method wherein customers are charged of low price for a high-quality offering: Perceived-value pricing Target-return Pricing Mark-up Pricing Going Rate Pricing Value Pricing 36

10. Which of the following statement is FALSE on the impact of other marketing activities? Consumers are willing to pay higher prices for known products than for unknown products Brands with average relative quality but high relative advertising budgets cant charge higher prices Price is a major factor when customer buys a product Customer support is important for buyers Brands with low quality and low advertising charged the lowest prices 37

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 38 Kotler.Copyright © 2009 Pearson Education, Inc. Publishing as Prentice Hall

Selecting the final price: the 6 th step in price setting The final price must take into account the brand’s quality and advertising relative to the competition The following are consumer’s behavior to brand based on the study of Farris and Reibstein: Consumers are willing to pay higher prices for known products than for unknown products Brands with average relative quality but high relative advertising budgets can charge higher prices Price is NOT a major factor when customer buys a product. Only 19% cared about the price Customer support is important for buyers Brands with low quality and low advertising charged the lowest prices 39

10. Which of the following statement is FALSE on the impact of other marketing activities? Consumers are willing to pay higher prices for known products than for unknown products Brands with average relative quality but high relative advertising budgets cant charge higher prices Price is a major factor when customer buys a product Customer support is important for buyers Brands with low quality and low advertising charged the lowest prices 40

TOP 10 Learning Questions for ( CHAPTER 14: DEVELOPING PRICING STRATEGIES AND PROGRAMS) Antonieta Manalang September 23, 2010

Ch 14 Developing Pricing Strategies And Programs- Manalang

More Related Content

What's hot (20)

Viewers also liked (7)

Similar to Ch 14 Developing Pricing Strategies And Programs- Manalang (20)

Recently uploaded (20)

Ch 14 Developing Pricing Strategies And Programs- Manalang