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Chapter 12 - Developing Pricing Strategies and Programs
I. Chapter Overview/Objectives/Outline
A.Overview
Price has become one of the more important marketing variables. Despite the increased role of non-price factors in the modern marketing process, price is a critical marketing element, especially in markets characterized by monopolistic competition or oligopoly. Competition and more sophisticated buyers have forced many retailers to lower prices and in turn place pressure on manufacturers. Further, there has been increasing buyer awareness of costs and pricing, and growing competition within the channels, which in turn provides the consumer with even more awareness of the pricing process.
In setting the price of a product, the company should follow a six-step procedure. First, the company carefully establishes its marketing objective(s), such as survival, maximum current profit, maximum current revenue, maximum sales growth, maximum market skimming or product-quality leadership. Second, the company determines the demand schedule, which shows the probable quantity purchased per period at alternative price levels. The more inelastic the demand, the higher the company can set its price. Third, the company estimates how its costs vary at different output levels, production levels, different marketing strategies, differing marketing offers, and target costing based on market research. Fourth, the company examines competitors'' prices as a basis for positioning its own price. Fifth, the company selects one of the following pricing methods: markup pricing, target return pricing, perceived-value pricing, value pricing, going-rate pricing, and sealed-bid pricing. Sixth, the company selects its final price, expressing it in the most effective psychological way, coordinating it with the other marketing mix elements, checking that it conforms to company pricing policies, and making sure it will prevail with distributors and dealers, company sales force, competitors,...