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MKTG 4381 - Pricing Strategies

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Mario V. Gonzalez-Fuentes

on 28 November 2017

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Transcript of MKTG 4381 - Pricing Strategies

Pricing Strategies
Marketing Management
Setting Prices
1. Selecting the Pricing Objective
Maximum current profit
Maximum market share
Maximum market skimming
Product-quality leadership
2. Determining Demand
Price sensitivity and Price elasticity of demand

Estimate demand curves
Lack of close substitute products:
The product is more distinctive
Buyers are less aware of substitutes
Buyers cannot easily compare the quality of substitutes
Smaller total expenditure
Expenditure is a smaller part of buyer’s total income
Expenditure is small compared to the total cost
Part of the cost is paid by another party
Complementary Products
Product is used with previously purchased assets
Perceived Product Benefits
Product is assumed to have high quality and prestige
Situational Influences
Buyers cannot store the product
Time pressure
Social Risk
Situations that decrease Price Sensitivity
Inelastic and Elastic Demand

Price Experiments

Statistical Analysis
3. Estimating Costs
Fixed costs

Variable costs

Total costs

Average cost

Cost at different levels of accumulated production
Cost Per Unit at Different Levels of Production
Cost per Unit as a Function of Accumulated Production
4. Analyzing Competitor's Costs, Prices and Offers
The Three Cs Model for Price-Setting
5. Selecting a Price Method
Markup pricing

Target-return pricing

Perceived-value pricing

Value pricing

Going-rate pricing

Auction-type pricing
Break-Even Chart for Determining Target-Return Price and Break-Even Volume
Selecting the Final Price
Impact of other marketing activities
Company pricing policies
Gain-and-risk sharing pricing
Impact of price on other parties
Adapting Prices
Price Discounts and Allowances
Quantity discount
Functional discount
Seasonal discount
Promotional Pricing Tactics
Decoy Effect
Loss-leader pricing
Special-event pricing
Cash rebates
Low-interest financing
Longer payment terms
Warranties and service contracts
Differentiated Pricing
First-degree price discrimination
Second-degree price discrimination
Third-degree price discrimination
Customer-segment pricing
Product-form pricing
Image pricing
Channel pricing
Location pricing
Time pricing
Changing prices: Ups and downs
Price Cuts
Low-quality trap
Fragile-market-share trap
Shallow-pockets trap
Price-war trap
Traps in Price Cutting Strategies
Maintain price
Maintain price and add value
Reduce price
Increase price and improve quality
Launch a low-price fighter line
Responding to Competitors' Price Cuts
Price Increases
Cost Inflation

Anticipatory Pricing

Circumstances provoking price increases
Delayed quotation pricing
Escalator clauses
Reduction of discounts
Methods for Increasing Prices
Situations that increase Price Sensitivity
Availability of close substitutes
Product not perceived as distinct
Buyers can easily compare quality and prices
Abundance of reviews/opinions comparing substitutes
Higher total expenditure
Expenditure is a large part of buyer's total income
Expenditure is large compared to the total cost
Noticeable differences
Heavily promoted/advertised products
Psychological thresholds
Situational differences
Leisure shopping
Possibility of storing the product
Full transcript