Chapter 10

Pricing Strategy
Objectives
After successfully completing this chapter, students should be able to:
10.1 define the term price and explain how a banks pricing contributes to its
profitability (sec 10.!
10. describe how price elasticity of demand affects a firm and a market (sec 10."!
10." discuss strategies for pricing new products and changing the price of an existing
product (sec 10.#!
10.# differentiate between incremental cost and fully allocated cost (sec 10.#..$!
10.% name three audiences whose reactions must be taken into consideration when
making bank pricing decisions (sec 10.%!, and
10.$ discuss regulatory and compliance issues that affect pricing (sec 10.$!
Key Concepts
&ricing is the only element of the marketing mix that directly generates income.
&rice affects the 'olume of goods and ser'ice sold to a greater or lesser degree,
depending on the price elasticity of demand for the product.
&ricing decisions are made when introducing a new product or repricing existing
products. (he latter situation arises when costs increase, when competition
changes a price, or when regulation allows or re)uires a price change.
(wo of the most important new product pricing strategies are skimming and
penetration pricing.
*ther pricing strategies are relationship pricing, percei'ed 'alue pricing, and
beha'ior modification pricing.
&rice changes must be carefully communicated to customers and employees.
+n all their pricing decisions, banks must be cogni,ant of regulatory restrictions
and of the possibility of drawing ad'erse reaction from consumer groups or
regulators.
Topical Outline
10.1 +ntroduction
10. (he definition and role of &rice
10." &ricing and the -anks &rofitability
10.".1 .actors affecting elasticity
10.". &rice elasticity of demand
10."..1 .actors affecting elasticity
10.".. &rice elasticity of demand at the market and firm le'els
10.".." /stimating customer response to price changes
10.# &ricing 0ecisions
10.#.1 &ricing strategies for new products
10.#.1.1 1kimming &ricing
10.#.1. &enetration &ricing
10.#.1." *ther pricing strategies
10.#. 2hanging the price of existing products
10.#..1 +nitiating price changes
10.#.. 3eacting to competiti'e price changes
10.#.." 3esponding to regulations affecting pricing
10.#..# 4ow pricing decisions are made
10.#..% 2osts
10.#..$ +ncremental 'ersus fully allocated costs
10.#..5 6ho makes pricing decisions
10.% 3eactions to pricing
10.%.1 2ustomers reactions
10.%. /mployees reactions
10.%." 2ompetitors reactions
10.$ 3egulation and the &ricing of -ank 1er'ices
10.5 1ummary