Copyright 2017 Pearson Education, Ltd.

9-1
Learning Objectives
9-1. Identify the three major pricing
strategies and discuss the importance
of understanding customer-value
perceptions, company costs, and
competitor strategies when setting prices.
9-2. Identify and define the other
important external and internal
factors affecting a firms pricing
decisions.
9-3. Describe the major strategies for
pricing new products.
Copyright 2017 Pearson Education, Ltd. 9-2
Learning Objectives
9-4. Explain how companies find a set
of prices that maximizes the
profits from the total product mix.
9-5. Discuss how companies adjust
their prices to take into account
different types of customers and
situations.
9-6. Discuss the key issues related to
initiating and responding to price
changes. Copyright 2017 Pearson Education, Ltd. 9-3
First Stop: Amazon versus
Walmart
A Price War for Online Supremacy
Walmart versus
Amazon online:
Achieving online
supremacy will
take more than
just waging and
winning an online
price war. The
spoils will go to
the company that
delivers the best
overall online Copyright 2017 Pearson Education, Ltd. 9-4
Learning Objective 9-1
Identify the three major pricing strategies
and discuss the importance of
understanding customer value
perceptions, company costs, and
competitor strategies when setting prices.

Copyright 2017 Pearson Education, Ltd. 9-5

Price
Amount of money
charged for a product or
service
Determines a firms
market share and
profitability
Produces revenue

Copyright 2017 Pearson Education, Ltd. 9-6

Figure 9.1 - Considerations in
Setting Price

Copyright 2017 Pearson Education, Ltd. 9-7

Customer Value-Based
Pricing
Based on buyers perceptions of
value rather than on the sellers cost
Price is considered before the
marketing program is set.
Types of value-based pricing:
Good-value pricing
Value-added pricing

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Value-Added Pricing

AMCs Cinema
Suites are
adding
amenities and
charging
more.

Copyright 2017 Pearson Education, Ltd. 9-9

Figure 9.2 - Value-Based Pricing
versus Cost-Based Pricing

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Cost-Based Pricing
Based on the costs of producing,
distributing, and selling the product
plus a fair rate of return for effort and
risk
Types of costs:
Fixed costs (overhead)
Variable costs
Total costs

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Types of Cost-Based Pricing

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Figure 9.3 - Break-Even Chart for
Determining Target Return Price and
Break-Even Volume

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Competition-Based Pricing
Setting prices based on competitors
strategies, costs, prices, and market
offerings

Company should ask several

questions to assess competitors
pricing strategies:
How does the companys market
offering compare in terms of customer
value?
How strong are current competitors?
Copyright 2017 Pearson Education, Ltd. 9 - 14
Competition-Based Pricing

Caterpillar
dominates the
heavy
equipment
industry
despite
charging
premium
Copyright 2017 Pearson Education, Ltd. 9 - 15
Learning Objective 9-1
Summary
The three major pricing strategies
include
Customer value-based pricing
Cost-based pricing
Competition-based pricing
Customer value perceptions,
company costs and competitor
strategies are important
considerations when setting prices.
Copyright 2017 Pearson Education, Ltd. 9 - 16
Learning Objective 9-2
Identify and define the other important
external and internal factors affecting a
firms pricing decisions.

Copyright 2017 Pearson Education, Ltd. 9 - 17

Considerations Affecting
Pricing Decisions
Internal factors
Overall marketing strategy, objectives,
and mix
Organizational considerations
External factors
Market and demand
Economy
Impact on other parties in its
environment

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Overall Marketing Strategy,
Objectives, and Mix
Pricing decisions must coordinate
with packaging, promotion, and
distribution decisions.
Positioning may be based on price.
Target costing starts with an ideal
selling price, then targets costs that
ensure the price is met.
Nonprice positions can be created to
differentiate the marketing offer.

Copyright 2017 Pearson Education, Ltd. 9 - 19

Organizational
Considerations
Management decides who should set
prices.
Varies depending on the size and
type of company
Small companies - Top management
Large companies - Divisional or product
managers
Industries with price as the key factor -
Pricing departments

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Pricing in Different
Types of Markets

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 Pricing in Oligopolistic
Markets

Price is an important
competitive tool for
DirecTV and other
cable providers.

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Figure 9.4 - Demand Curve

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Price Elasticity of Demand
Measure of the sensitivity of demand
to changes in price
Inelastic demand: Demand hardly
changes with a small change in price.
Elastic demand: Demand changes
greatly with a small change in price.

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Economy

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Other External Factors
Company must consider several
other factors in its external
environment when setting prices.
Resellers
Government
Social concerns

Copyright 2017 Pearson Education, Ltd. 9 - 26

Learning Objective 9-2
Summary
Factors affecting a firms pricing
decisions:
Internal marketing strategy, objectives,
marketing mix, and organizational
considerations
External nature of market, demand,
economy, reseller needs, and government
actions

Copyright 2017 Pearson Education, Ltd. 9 - 27

Learning Objective 9-3
Describe the major strategies for pricing
new products.

Copyright 2017 Pearson Education, Ltd. 9 - 28

New Product Pricing
Strategies

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New Product Pricing
Strategies

Samsung has
used low
initial prices
in emerging
mobile device
markets.

Copyright 2017 Pearson Education, Ltd. 9 - 30

Learning Objective 9-3
Summary
Strategies for pricing new products
include
Market-skimming pricing
Market-penetrating pricing

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Learning Objective 9-4
Explain how companies find a set of
prices that maximizes the profits
from the total product mix.

Copyright 2017 Pearson Education, Ltd. 9 - 32

Product Mix Pricing
Strategies
Product line pricing
Optional-product pricing
Captive-product pricing
By-product pricing
Product bundle pricing

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Product Mix Pricing

Nearly 77
percent of
Keurigs
sales come
from its K-
Cup portion
packs.

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Learning Objective 9-4
Summary
The firm uses the following pricing
strategies to maximize the profits
from the total mix:
Product line pricing
Optional products
Captive products
By-products
Product bundles

Copyright 2017 Pearson Education, Ltd. 9 - 35

Learning Objective 9-5
Discuss how companies adjust their
prices to take into account different
types of customers and situations.

Copyright 2017 Pearson Education, Ltd. 9 - 36

Price Adjustment Strategies

Discount and allowance pricing

Segmented pricing
Psychological pricing
Promotional pricing
Geographical pricing
Dynamic pricing
International pricing

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Discount and Allowance
Pricing
Discount - a straight reduction in
price on purchases during a stated
period of time or of larger quantities
Cash, quantity, functional, and seasonal
discounts
Allowance - promotional money
paid to retailers for an agreement to
feature the manufacturers products
in some way
Trade-in and promotional allowances
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Segmented Pricing
Selling a product or service at two or
more prices, where the difference in
prices is not based on differences in
costs
Forms of segmented pricing:
Customer-segment pricing
Product form pricing
Location-based pricing
Time-based pricing

Copyright 2017 Pearson Education, Ltd. 9 - 39

Psychological Pricing
Considers the psychology of prices
and not simply the economics
The price says something about the
product.
Reference prices: Prices that
buyers carry in their minds and refer
to when looking at a given product

Copyright 2017 Pearson Education, Ltd. 9 - 40

Promotional Pricing
Temporarily pricing products below
the list price to increase short-run
sales
Forms of promotional pricing:
Discounts and special-event pricing
Limited-time offers and cash rebates
Low-interest financing and longer
warranties
Free maintenance

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Geographical Pricing

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Dynamic and Online Pricing
Dynamic pricing: Adjusting prices
continually to meet the
characteristics and needs of
individual customers and situations
Prevalent online where the Internet
introduces a new age of fluid pricing

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Dynamic and Online Pricing

With
Amazons
Price Check,
consumers
can get
instant
product and
price
Copyright 2017 Pearson Education, Ltd. 9 - 44
International Pricing

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Learning Objective 9-5
Summary
Companies apply a variety of price
adjustment strategies:
Discount and allowance pricing
Segmented pricing
Psychological pricing
Promotional pricing
Geographical pricing
Dynamic pricing
International pricing
Copyright 2017 Pearson Education, Ltd. 9 - 46
Learning Objective 9-6
Discuss the key issues related to
initiating and responding to price
changes.

Copyright 2017 Pearson Education, Ltd. 9 - 47

Initiating Price Changes
Reasons for price cuts:
Excess capacity
Falling demand
Attempt to dominate the market
Reasons for price increases:
Cost inflation
Over-demand

Copyright 2017 Pearson Education, Ltd. 9 - 48

Reactions to Price Changes

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Figure 9.5 - Responding to
Competitor Price Changes

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Figure 9.6 - Public Policy
Issues in Pricing

Copyright 2017 Pearson Education, Ltd. 9 - 51

Learning Objective 9-6
Summary
Customers and competitors
reactions must be considered when
initiating a price change.
Buyer reactions are influenced by
the meaning customers see in the
price change.
Competitors reactions flow from a
set reaction policy or an analysis of
each situation.
Any response to a competitors price
Copyright 2017 Pearson Education, Ltd. 9 - 52
Learning Objectives
9-1. Identify the three major pricing
strategies and discuss the importance
of understanding customer value
perceptions, company costs, and
competitor strategies when setting prices.
9-2. Identify and define the other
important external and internal
factors affecting a firms pricing
decisions.
9-3. Describe the major strategies for
pricing new products.
Copyright 2017 Pearson Education, Ltd. 9 - 53
Learning Objectives
9-4. Explain how companies find a set
of prices that maximizes the
profits from the total product mix.
9-5. Discuss how companies adjust
their prices to take into account
different types of customers and
situations.
9-6. Discuss the key issues related to
initiating and responding to price
changes. Copyright 2017 Pearson Education, Ltd. 9 - 54