MKT 304 Section 02 Class 12 Pricing Strategy Course Website Post

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Pricing Strategy

Today’s Agenda
• Announcements
• Chapters 9 & 11

May 6, 2015

Refresher
• Branding
• New product development (NPD)
– NPD process

• Product life cycle (PLC)
– Product development, introduction, growth,
maturity, decline
– Dealing with declining products
– Extending the PLC

Review Questions
A few review questions from chapters 8 & 9

Annie is planning to buy a new washing
machine. She notices that they come in
numerous price ranges. She wants to
make sure she gets the most for her
money. This product is a(n) ________
product.
 
A) convenience
B) unsought
C) shopping
D) augmented
E) specialty

A barber is not able to store haircuts for later
sale. This is an example of which of the
following?
A) service perishability
B) low-context services
C) service intangibility
D) service inseparability
E) service variability

________ is used when two established
brand names of different companies are
used on the same product.
 
A) Co-branding
B) Cannibalization
C) Brand equity
D) Internal marketing
E) A brand extension

New-product development starts with
________.
A) concept testing
B) test marketing
C) idea screening
D) concept development
E) idea generation

Which of the following is the practice of
inviting broad communities of customers,
employees, independent researchers, and
members of the public into the newproduct innovation process?  
A) concept testing
B) crowdsourcing
C) brainstorming
D) outsourcing
E) idea screening

Where We’ve Been….

Price Definition

Name your price

Price: the only
mix element that
generates
revenue

Price: a highly visible tool

Price: an indicator
of quality, in the absence
of other information

Example….
• Effects of price on perceived quality

Plassmann, O’Doherty,
Shiv & Rangel (2008)

Major Pricing Strategies

Value-Based

Cost-Based

Competition-Based

Types of Value-Based Pricing

Good Value
perceptions

Everyday
Low Pricing
(EDLP)
HIGH-LOW

Cost-Based Pricing
• Set the floor for the price the company can
charge
• Cost ≠ Value
• Important element in Pricing Strategy

Cost-Based Pricing
• Cost-Plus (Markup) Pricing

PRODUCT COST

PRICE

MARKUP

CompetitionBased Pricing
How does the firm’s
offering compare (in
terms of value)?
How strong are
competitors?
What are their pricing
strategies?

Strategic: New Product
Pricing
Market skimming (price-skimming pricing):
setting a relatively high price for new products
(may be reduced as competition increases)

Market-penetration pricing:
setting low price to attract new customers,
grow market share

Product Mix Pricing Strategies
1.
2.
3.
4.
5.

Product-Line Pricing
Optional-Product Pricing
Captive-Product Pricing
By-Product Pricing
Product Bundling Pricing

Product Line Pricing

Optional Product Pricing

Captive-Product Pricing

When Captive-Product
Pricing Backfires….

By-Product Pricing

Product Bundle
Pricing

Example….

Price Adjustment
Strategies
1.
2.
3.
4.
5.
6.

Discounts and Allowances
Segmented Pricing
Psychological Pricing
Promotional Pricing
Geographical Pricing
International Pricing



Discounts and
Allowances
Markdowns, discounts
– cash, quantity, functional, seasonal
– functional discounts = trade discounts

• Allowances
– trade-in, promotional

Segmented Pricing
• Types of Segmented Pricing:
– Customer-Segment
• Ex: Museum Pricing

– Product-Form
• Ex: Evian (not based on cost)

– Location-Based
• Ex: Theaters/Universities

– Time-Based
• Ex: Resorts, Seasons

Psychological Pricing
• Price as indicator of quality
• Reference prices
•Symbolic & visual qualities associated with
numbers

Example….
• The power of:

Schindler & Kirby (1997)

Promotional Pricing
• Discounts
• Special-event
• Cash rebates

A Word About Rebates….

Geographical Pricing
•...
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