INTRODUCTORY MARKETING Pricing M. Louise Ripley, MBA, PhD

INTRODUCTORY MARKETING Pricing M. Louise Ripley, MBA, PhD

PRICING LECTURE Questions We Will Answer How is pricing part of Marketing Strategy? How is pricing affected by Cost, Demand, Competition? How do you set a price?

KEY FACTORS IN PRICING Objectives Strategies Policies and Constraints Tactics

PRICING OBJECTIVES Cost Demand Competition

PRICING OBJECTIVES COST ORIENTED Emphasis - Cost/Profit Target Return Satisfactory Return Maximize Current Profit Maximize Long Term Profit

COST CALCULATION: How real is this price? Estimate demand function Q 1000 - 4P Estimate cost function C 6000 50Q Calculate total revenues R P(1000-4P) Calculate Profits Z (1000P - 4P2) - (6000 50Q) Z -56,000 12,000P - 4P2 150

PRICING OBJECTIVES DEMAND ORIENTED Emphasis - Demand/Sales Growth in Market Share Growth in Dollar or Unit Sales

PRICING OBJECTIVES DEMAND ORIENTED How to Grow in Sales

Skimming the Cream Conditions: Demand Not Sensitive to Price Different Price Segments Consumers Unaware of Cost Little Competition

Skimming the Cream - High Price MAYOR’S FOUNTAIN PEN 500? Their Advertising Claim: “For the average lifestyle, the average writing instrument is perfectly adequate. But while most pens are designed for signing postcards, ours are designed for signing peace treaties.”

Skimming the Cream continuing the strategy. High Price First Lower Price Later Dupont: Cellophane, Nylon Polaroid: Camera

PRICING OBJECTIVES DEMAND ORIENTED How to Grow in Sales Skimming the Cream Penetration Pricing

PRICING OBJECTIVES DEMAND ORIENTED Penetration Pricing - Low Price Conditions: Demand is Price Sensitive No Different Price Segments Product Not A Status Item Competition Likely

Penetration Pricing Regular Penetration Pricing The Colt Car Sells at regular low price

Penetration Pricing Special Condition Nabisco’s New “Giggles” Cookies 20 cents off coupon for a short time only

PRICING OBJECTIVES COMPETITION ORIENTED Emphasis - Competition/Status Quo Meeting the Competition Non-Price Competition

BREAK EVEN ANALYSIS BEP 30,000/( 1.20- 0.80) 75,000 units Sells at 1.20 VC 0.80 FC 30,000 Units Break Even Point 75,000 units

PRICING STRATEGIES Mixing Price with the Other Variables Literally Thousands of Combinations

Marketing Mix Combinations Just One: Price and Quality P High Medium Low QHigh Premium Penetration Big Bargain Medium Overpriced Average Bargain Low Hit & Run Shoddy Cheap

PRICING STRATEGIES Cost Demand Competition

PRICING STRATEGIES COST ORIENTED Target Profit Pricing Mark-Up Pricing

PRICING STRATEGIES COST ORIENTED Problems Difficulties Determining Cost

Mark- Up Pricing Problems: What is Mark-up? 13%? Frozen Foods 53%?

PRICING STRATEGIES COST ORIENTED Problems Difficulties Determining Cost Legal Problems

PRICE FIXING

PRICING STRATEGIES DEMAND ORIENTED Perceived Value

PRICING STRATEGIES DEMAND ORIENTED Perceived Value Demand Differential

PRICING STRATEGIES DEMAND ORIENTED Perceived Value Demand Differential Customer Form

PRICING STRATEGIES DEMAND ORIENTED Perceived Value Demand Differential Customer Form

PRICING STRATEGIES DEMAND ORIENTED Perceived Value Demand Differential Customer Form Product Form

LEGAL PRODUCT FORM PRICE DISCRIMINATION TV without stereo sells for 250 TV with 5 worth of stereo parts sells for 350

PRICING STRATEGIES DEMAND ORIENTED Perceived Value Demand Differential Customer Form Product Form Place

PRICING STRATEGIES DEMAND ORIENTED Perceived Value Demand Differential Customer Form Product Form Place

PRICING STRATEGIES DEMAND ORIENTED Perceived Value Demand Differential Customer Form Product Form Place Time

PRICING STRATEGIES DEMAND ORIENTED Perceived Value Demand Differential Customer Form Product Form Place Time

PRICING STRATEGIES COMPETITION ORIENTED Going Rate Sealed Bid

PRICING OBJECTIVES and STRATEGIES Cost Demand Competition

PRICING POLICIES AND CONSTRAINTS Management Distributors Competitors Suppliers Company Executives Stockholders Government regulations

PRICING TACTICS Psychological Pricing Odd - Even: 69.95 Price Lining

PRICE LINING MEN’S SUITS as seen by the wearer of a 500 suit: cheap GOOD overpriced 300 500 700 as seen after a 10% price increase: cheap 330 GOOD 550 overpriced 770

PRICING TACTICS Psychological Pricing Odd - Even Pricing Price Lining Prestige Pricing

PRESTIGE PRICING BAYER

PRICING TACTICS Psychological Pricing Odd - Even Pricing Price Lining Prestige Pricing Promotional Pricing

ILLEGAL PROMOTIONAL PRICING Original Price 250 Illegal Pricing: Was 350 Now Only 300!!

PRICING TACTICS Discount Pricing Quantity Cash Trade/Functional Seasonal Consumer - everything else?

KEY FACTORS IN PRICING Objectives Cost, Demand, Competition Strategies Cost, Demand, Competition Policies and Constraints Tactics

PRICING LECTURE SUMMARY How is pricing part of Marketing Strategy? How is pricing affected by Cost, Demand, Competition? How do you set a price? Real World Story - Earmuffs tape