Chapter 11: Developing Pricing Strategies and Programs

Chapter 11: Developing Pricing Strategies and Programs

Understanding Pricing

• ·         Price is not just a number on a tag. It comes in many forms and performs many functions whether it’s called rent, tuition, fares, fees, rates, tolls, or commissions.

Pricing in a Digital World

• ·         Price has operated as a major determinant of buyer choice.
• ·         Downward price pressure from a changing economic environment coincided with some longer-term trends in the technological environment.

A Changing Pricing Environment

• ·         Pricing practices have changed significantly, thanks in part to a severe recession in 2008-2009, a slow recovery, and rapid technological advances.
• ·         Shared economy- in which consumers share bikes, cars, clothes, couches, apartments, tools, and skills and extracting more value from what they already own.
• ·         Most platforms that are part of a sharing-related business have some form of self-policing mechanism such as public profiles and community rating systems, sometimes linked with Facebook.

How Companies Price

• ·         In small companies, the boss often sets prices.
• ·         In large companies, division and product line managers do.
• ·         Pricing is a key competitive factor, companies often establish a pricing department to set or assist others in setting appropriate prices.
• ·         Common pricing mistakes include not revising price often enough to capitalize on market changes; setting price independently of the rest of the marketing program rather than as an intrinsic element of marketing-positioning strategy; and not varying price enough for different product item, marketing segments, distribution channels, and purchase occasions.

Consumer Psychology and Pricing

·         Marketers recognize that consumers often actively process prices information, interpreting it from the context of prior purchasing experience, formal communications, informal communications, consumer’s perceived prices and what they consider the current actual price to be-not on the marketer’s stated price.

·         Three key topics for understanding how consumers arrive at their perceptions of prices are:

o   Reference prices

o   Price-quality inferences

o   Price endings