Lectures Marketing management: Chapter 14 - ThS. Nguyễn Tiến Dũng

CHAPTER 14
DEVELOPING PRICING
STRATEGIES AND PROGRAMS
Nguyen Tien Dung, MBA
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Chapter Questions
1. How do consumers process and evaluate

prices?
2. How should a company set prices initially for
products or services?
3. How should a company adapt prices to meet
varying circumstances and opportunities?
4. When should a company initiate a price
change?
5. How should a company respond to a
competitor’s price change?
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Main Contents
1. Understanding Pricing
2. Setting the Price
3. Price-Adaptation Strategies
4. Initiating and Responding to Price Changes

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1. Understanding Pricing
● Names of Price
● A Changing Pricing Environment
● How Companies Price
● Consumer Psychology and Pricing

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Synonyms for Price
● Rent

● Special assessment

● Tuition

● Bribe

● Fee

● Dues

● Fare

● Salary

● Rate

● Commission

● Toll

● Wage

● Premium

● Tax

● Honorarium

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Common Pricing Mistakes
● Determine costs and take traditional industry

margins
● Failure to revise price to capitalize on market
changes
● Setting price independently of the rest of the
marketing mix
● Failure to vary price by product item, market

segment, distribution channels, and purchase
occasion

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Consumer Psychology and Pricing
● Reference prices
● Price-quality inferences
● Price endings
● Price cues

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Table 14.2 Consumer Perceptions vs. Reality for Cars
Overvalued Brands
● Land Rover
● Kia
● Volkswagen
● Volvo

● Mercedes

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Undervalued Brands
● Mercury
● Infiniti
● Buick
● Lincoln
● Chrysler

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Price Cues
● “Left to right” pricing ($299 vs. $300)
● Odd number discount perceptions
● Even number value perceptions
● Ending prices with 0 or 5
● “Sale” written next to price

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When to Use Price Cues
● Customers purchase item infrequently
● Customers are new
● Product designs vary over time

● Prices vary seasonally
● Quality or sizes vary across stores

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2. Setting the Price: Steps
● Select the price objective
● Determine demand
● Estimate costs
● Analyze competitor price mix
● Select pricing method
● Select final price

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

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Step 2: Determining Demand
● Price sensitivity
● Estimate demand curves
● Price elasticity of demand

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Table 14.3 Factors Leading to Less Price Sensitivity
● The product is more distinctive
● Buyers are less aware of substitutes

● Buyers cannot easily compare the quality of substitutes
● The expenditure is a smaller part of buyer’s total income
● The expenditure is small compared to the total cost of the
●
●
●
●

end product
Part of the cost is paid by another party
The product is used with previously purchased assets
The product is assumed to have high quality and prestige
Buyers cannot store the product

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Step 3: Estimating Costs
● Types of costs
● Accumulated production
● Activity-based cost accounting
● Target costing

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Cost Terms and Production
● Fixed costs
● Variable costs
● Total costs
● Average cost
● Cost at different levels of production


Experience Curve

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

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Mark-up Pricing

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Target-Return Pricing

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Break-even Analysis

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Value-Based Pricing

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Auction-Type Pricing
● English auctions
● Dutch auctions
● Sealed-bid auctions

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