Marketing Essentials

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Marketing Essentials
n Chapter 26 Pricing Strategies
Section 26.2 Setting Prices
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SECTION 26.2
Setting Prices
What You'll Learn

• The various pricing techniques
• The steps in setting prices

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SECTION 26.2
Setting Prices
Why It's Important
Now that you have studied pricing concepts and
policies, it is time to look at the special
pricing techniques that help companies achieve
their business goals. Then you will put all of
that information into a single process the steps
for determining price.
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SECTION 26.2
Setting Prices
Key Terms

• everyday low prices (EDLP)
• price lining
• discount pricing
• trade discounts
• seasonal discounts

• psychological pricing
• odd-even pricing
• prestige pricing
• multiple-unit pricing
• bundle pricing
• promotional pricing

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SECTION 26.2
Setting Prices
Pricing Techniques

• Two common pricing techniques marketers use are
• psychological pricing
• discount pricing

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SECTION 26.2
Setting Prices
Psychological Pricing

• Psychological pricing refers to techniques that
  create an illusion for customers or that make
  shopping easier for them. Common psychological
  pricing techniques are
• odd-even pricing
• prestige pricing
• multiple-unit pricing
• bundle pricing
• promotional pricing
• everyday low prices (EDLP)
• price lining

Slide 1 of 5
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SECTION 26.2
Setting Prices
Psychological Pricing
Odd-even pricing involves setting prices that end
in either odd or even numbers. Odd numbers convey
a bargain image even numbers convey
quality. Prestige pricing involves setting
higher-than-average prices to suggest status and
prestige.
Slide 2 of 5
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SECTION 26.2
Setting Prices
Psychological Pricing
Multiple-unit pricing involves pricing items in
multiples to suggest a bargain and increase sales
volume. Bundle pricing involves including several
complementary products in a package and pricing
them lower as a group than if they were bought
separately.
Slide 3 of 5
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SECTION 26.2
Setting Prices
Psychological Pricing

• Promotional pricing is generally used in
  conjunction with sales promotions when prices are
  lower than average.
• Loss-leader pricing provides items at cost to
  attract customers.
• In special-event pricing, prices are reduced for
  a short period of time, such as a holiday sale.

Slide 4 of 5
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SECTION 26.2
Setting Prices
Psychological Pricing
Everyday low prices (EDLP) are low prices that
are set on a consistent basis with no intention
of raising them or offering discounts in the
future. Price lining involves offering all
merchandise in a given category at certain
prices, such as 25, 35, and 50.
Slide 5 of 5
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SECTION 26.2
Setting Prices
Discount Pricing

• Discount pricing involves the seller's offering
  reductions from the usual price. They include
• cash
• quantity
• trade
• seasonal discounts
• promotional discounts and allowances

Slide 1 of 4
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SECTION 26.2
Setting Prices
Discount Pricing

• Cash discounts are offered to buyers to encourage
  them to pay their bills quickly.
• Quantity discounts are offered to buyers for
  placing large orders.
• Noncumulative quantity discounts are offered on
  one order.
• Cumulative quantity discounts are offered on all
  orders over a specified period of time.

Slide 2 of 4
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SECTION 26.2
Setting Prices
Discount Pricing
Trade discounts are the way manufacturers quote
prices to wholesalers and retailers.
Manufacturers establish suggested retail prices
for their items, then grant members of the
channel of distribution discounts from the list
prices for performing their respective functions.
Slide 3 of 4
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SECTION 26.2
Setting Prices
Discount Pricing
Seasonal discounts are offered to buyers willing
to buy at a time outside the customary buying
season. Promotional discounts are offered to
wholesalers and retailers willing to advertise or
promote a manufacturer's products. Allowances are
granted to customers for selling back an old
model.
Slide 4 of 4
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SECTION 26.2
Setting Prices
Steps in Setting Prices
These are the six steps in determining a price
for an item 1. Determine pricing objectives. 2.
Study costs. 3. Estimate demand. 4. Study
competition. 5. Decide on a pricing strategy. 6.
Set price.
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SECTION 26.2
Setting Prices
Step 1Determining Pricing Objectives
What is your purpose in setting a price? Do you
want to increase sales volume or sales revenue?
Establish a prestigious image? Increase your
market share and market position? Answering these
questions will help you keep your prices in line
with other marketing decisions.
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SECTION 26.2
Setting Prices
Step 2Study Costs
Since the main reason for being in business is to
make a profit, give careful consideration to the
costs involved in making or acquiring the goods
or services you will offer for sale. Determine
whether and how you can reduce costs without
affecting the quality or image of your product.
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SECTION 26.2
Setting Prices
Step 3Estimate Demand
Employ market research techniques to estimate
consumer demand. The key to pricing goods and
services is to set prices at the level consumers
expect to pay. In many cases, those prices are
directly related to demand.
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SECTION 26.2
Setting Prices
Step 4Study Competition
Investigate your competitors to see what prices
they are charging for similar goods and
services. Study the market leader. What is the
range of prices from the ceiling price to the
price floor? Will you price your goods lower
than, equal to, or higher than your competitors'?
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SECTION 26.2
Setting Prices
Step 5Decide on a Pricing Strategy
You may decide to price your product higher than
the competition's because you believe your
product is superior. You may decide to set a
lower price with the understanding that you will
raise it once the product is accepted in the
marketplace.
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SECTION 26.2
Setting Prices
Step 6Set Price
After you have evaluated all the foregoing
factors, apply the pricing techniques that match
your strategy and set an initial price. Be
prepared to monitor that price and evaluate its
effectiveness as conditions in the market change.
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ASSESSMENT
26.2
Reviewing Key Terms and Concepts
1. How are odd-even, prestige, multiple-unit,
and bundle pricing related? Different? 2. What
is the main difference between promotional
pricing and everyday low prices? 3. What is the
key factor in deciding on price lines? 4. Name
five types of discount pricing techniques. 5. List
the six steps in setting prices.
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ASSESSMENT
26.2
Thinking Critically
Johnson Johnson promoted its baby shampoo to
adult male athletes by touting the product's
gentleness, even when used every day. At what
stage in the shampoo's life cycle do you think
this promotion took place? What do you think
Johnson Johnson was trying to accomplish by
promoting its baby shampoo to adult males?
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26.2
Graphic Organizer
Types of Psychological Pricing
Odd- Even Pricing
PrestigePricing
Price Lining
Psychological Pricing
Everyday Low Prices (EDLP)
Multiple- Unit Pricing
Bundle Pricing
Promotional Pricing
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Marketing Essentials
End of Section 26.2