Chapter 8 - Wright State University

marketing strategy
O. C. Ferrell
Michael D. Hartline
Pricing Strategy
Is a key factor in producing revenue for the firm
Is the easiest of all marketing variables to change
Is an important consideration in competitive intelligence
Is considered to be the only means of differentiation in
highly commoditized markets
• Is among the most complex decisions in the marketing
Discussion Question
• One of the key themes of today’s economy is the
challenge of marketing goods and services in mature
markets that are plagued by commoditization. In what
ways is pricing strategy related to commoditization?
How can a firm offer good value in a mature market
where price is the only visible means of differentiation?
Are most firms too concerned about their costs to really
deliver value in other ways? Explain.
The Role of Pricing in
Marketing Strategy (1 of 2)
• The Seller’s Perspective on Pricing
– Four key issues:
Customer value
Competitors’ prices
• The Buyer’s Perspective on Pricing
– Two key issues:
• Perceived value
• Price sensitivity
The Role of Pricing in
Marketing Strategy (2 of 2)
• A Shift in the Balance of Power
– A buyer’s market occurs when:
• Large number of sellers in the market
• Many substitutes for the product
• Economy is weak
– A seller’s market occurs when:
• Products are in short supply
• Products are in high demand
• Economy is strong
The Relationship Between
Price and Revenue
• Myth #1 – When business is good, a price cut will
increase market share.
• Myth #2 – When business is bad, a price cut will
stimulate sales.
• Price cutting is generally not in the best interests of
the firm unless sales volume will increase.
• A better strategy is to build value into the product
offering at the same (or even a higher) price.
Key Issues in Pricing Strategy
Pricing Objectives
Supply and Demand
The Firm’s Cost Structure
Competition and Industry Structure
Pure Competition
Monopolistic Competition
• Stage of the Product Life Cycle
Common Pricing Objectives
Exhibit 8.1
Pricing Strategy Over
the Product Life Cycle
Exhibit 8.2
Pricing Strategy in Services
• Is critical because price may be the only cue to quality
• Becomes more important and difficult when:
Service quality is hard to detect prior to purchase
Costs are difficult to determine
Customers are unfamiliar with the process
Brand names are not well established
Customers can perform the service themselves
Service has poorly defined units of consumption
Advertising within the service category is limited
The total price of the service is difficult to state beforehand
Discussion Question
• Pricing strategy associated with services is
typically more complex than the pricing of
tangible goods. As a consumer, what pricing
issues do you consider when purchasing services?
How difficult is it to compare prices among
competing services, or to determine the complete
price of the service before purchase? What could
service providers do to solve these issues?
Price Elasticity and Yield
• Allows simultaneous control of capacity and
– Control capacity by limiting available capacity at certain
price points
– Control demand through price changes and overbooking
Yield Management for a Hypothetical Hotel
Exhibit 8.3
Price Elasticity of Demand (1 of 2)
Exhibit 8.4
Price Elasticity of Demand (2 of 2)
• Situations that increase price sensitivity:
– Availability of product substitutes
– Higher total expenditure
– Noticeable differences
– Easy price comparison
• Situations that decrease price sensitivity:
– Real or perceived necessities
– Lack of product substitutes
– Complementary products
– Product differentiation
– Perceived product benefits
– Situational influences
Discussion Question
• Price elasticity often varies for the same product
based on the situation. What situational factors
might affect the price elasticity of these products:
sporting event or concert tickets
staple goods such as milk, eggs, or bread
an electric razor
eye surgery to correct vision
Pricing Strategies (1 of 2)
• Base Pricing Strategies
Market Introduction Pricing (skimming and penetration)
Prestige Pricing
Value-Based Pricing (EDLP)
Competitive Matching
Non-Price Strategies
• Adjusting Prices in Consumer Markets
Promotional Discounting
Reference Pricing
Odd-Even Pricing
Price Bundling
Marketing Strategy in Action
• Chrysler’s initial price skimming strategy for the
Pacifica was not successful in attracting customers. Why
would customers balk at a $40,000 price tag for the
Pacifica? What are the issues affecting price sensitivity
in this situation?
Pricing Strategies (2 of 2)
• Adjusting Prices in Business Markets
Trade discounts
Discounts and allowances
Geographic pricing
Transfer pricing
Barter and countertrade
Price discrimination
Fixed vs. Dynamic Pricing
• Pricing levels in a negotiated pricing situation:
– Opening position
– Aspiration price
– Limit
• Guidelines for making concessions:
– Avoid being the first side to make a concession
– Start with modest concessions and make them smaller as
you proceed
– Avoid making concessions early in the negotiation
– Do not give up anything without something in return
Major Online Auction Strategies
Exhibit 8.5
Legal and Ethical Issues in Pricing
Price Discrimination
Price Fixing
Predatory Pricing
Deceptive Pricing
Selling at a Loss
• Sony is expected to lose money on each PlayStation 3 console
due to the cost of the cell processor and the Blu-ray DVD
drive. Sony plans to make up for the loss in games and
accessories. Is this a sound pricing strategy? How can Sony
minimize the loss on each console?
Beyond the Pages 8.2

similar documents