Strategic Marketing

1. Imperatives for Market-Driven Strategy

2. Markets and Competitive Space
3. Strategic Market Segmentation
4. Strategic Customer Relationship Management
5. Capabilities for Learning about Customers and Markets
6. Market Targeting and Strategic Positioning
7. Strategic Relationships
8. Innovation and New Product Strategy
9. Strategic Brand Management
10. Value Chain Strategy
11. Pricing Strategy
12. Promotion, Advertising and Sales Promotion
Strategies
13. Sales Force, Internet, and Direct Marketing Strategies
14. Designing Market-Driven Organizations
15. Marketing Strategy Implementation And Control
 CHAPTER 11

PRICING STRATEGY

Strategic Role of Price

Analyzing the Pricing Situation
Selecting the Pricing Strategy
Determining Specific Prices and Policies

McGraw-Hill/Irwin Copyright 2009 by The McGraw-Hill Companies, Inc. All rights reserved.
 Pricing Decisions are Creating Major Challenges for
Many Companies
Examples Include:
Threats to major airlines by discount carriers.
Pressures on drug companies to reduce prices.
Intense price competition on supermarket chains
by Wal-Mart and Costco.
Aggressive discounting by U.S. automobile
producers to retain market share.
Threats to strong brands by counterfeit products.

11-3
 STRATEGIC ROLE OF PRICE
requires that we put pricing at the beginning of the
process. For example, a multi-part marketing
strategy usually is required in value-based pricing.
Airlines complicated service packages with arcane
restrictions, and their multiple channels of
distribution must support pricing that reflects
different values of the service to different segments.
Without such a strategy, airlines would capture a
much smaller portion of the value they have the
potential to create.

T. Nagle, Marketing News, 11/9/98, 4. 11-4

 Price in the Positioning Strategy
Target
market and
objectives

Positioning Strategy
Product Value-Chain
strategy strategy

Pricing
strategy

Promotion
strategy

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 Pricing Situations
New product pricing
Life cycle pricing
Changing positioning strategy
Countering competitive threats

11-6
 Various Roles of Pricing

Signal to the
Buyer

Marketing Program Instrument of

Considerations Competition

Improving Financial
Performance

11-7
Pricing Strategy for New and Existing Products

Set Pricing
Objectives

Analyze the
Pricing Situation

Select Pricing
Strategy

Determine Specific
Prices and Policies

11-8
 Examples of Pricing Objectives

Gain market position

Achieve financial performance
Product positioning
Stimulate demand
Influence competition

11-9
ANALYZING THE PRICING SITUATION
Customer Price
Sensitivity

Pricing Analyzing the

Pricing Situation Product
Objectives Costs

Competitors Likely
Responses

11-10
 Customer Price Sensitivity
1. How large is the product-market in terms of buying
potential?
2. What are the market segments and what market target
strategy is to be used?
3. How sensitive is demand in the segment(s) to
changes in price?
4. How important are nonprice factors, such as features
and performance?
5. What are the estimated sales at different price levels?

11-11
Buyers Perceptions of Value Offerings of Brands A-E

Perceived
Value Superior Value Zone
D A
B
E

C
Inferior Value Zone
Perceived Price

11-12
 Cost Analysis for Pricing Decisions
Determine the components
of the cost of the product.
Estimate how cost varies with
the volume of sales.
Analyze the cost competitive
advantage of the product.
Decide how experience in
producing the product affects
costs.
Estimate how much control
management has over costs.
11-13
 Competitor Analysis
Which firms represent the most direct
competition
Competitors positioning on a relative price
basis
Competitors success with their pricing
strategies
Competitors probable responses to
alternative price strategies

11-14
SELECTING THE PRICING STRATEGY

How much flexibility exists?

How to position price relative to
costs?
How visible to make the price of
the product?

11-15
 Determinants of Pricing Flexibility

Demand

Pricing
Competition Demand-Cost Gap Objectives

Costs

11-16
 Determining Feasible Prices
Price too high; little or
no demand

Price Ceiling
Range of feasible prices

Nature of demand in target market

Business and marketing strategy
Product differentiation
Competitors prices
Prices of substitutes
Product costs
Price Floor

Price too low; no profit possible

11-17
 Above
Competition
Skim strategy

Neutral strategy
(same as competition)

Below Penetration strategy

Competition
11-18
 Diplomacy rather than
force

Select competitive Competitive Target

segments
confrontations Pricing Issues instead of
volume

Signaling

Source: Thomas T. Nagle, Price Competition, Marketing Management, Vol. 2, No. 1, 38-45.

11-19
 Illustrative Price Strategies
Active
strategy

Low- High-
active active
Low strategy strategy High
relative relative
price price
Low- High-
passive passive
strategy strategy

Passive
strategy
11-20
 DETERMINING SPECIFIC PRICES AND POLICIES

Selecting Specific Prices

Policies to Manage Pricing Strategy
Special Pricing Issues

11-21
 Basis of Determining
Specific Prices

Cost Competition
Demand

11-22
Establishing Pricing Policy and Structure
Policy
Discounts, allowances, returns, and other
operating guidelines
Pricing Structure
Product mix and line pricing relationships
How individual items in the line are priced
in relation to one another

11-23
 Managing Pricing Strategy
1. The more that the competitors and customers know about your
pricing, the better off you are. In an information age, it is necessary to
be transparent about prices and the value of a firms offerings.

2. In highly competitive markets, the focus should be on those market

segments that provide opportunities to gain competitive advantage.
Such a focus leads to a value-oriented pricing approach.

3. Pricing decisions should be made within the context of an overall

marketing strategy that is embedded within a business or corporate
strategy.

4. Successful pricing decisions are profit oriented, not sales volume or

market share oriented.

Source: Adapted from Kent B. Monroe, Pricing, 3rd ed. (Burr Ridge, IL.: McGraw-Hill/Irwin, 2003) 624-6.
11-24
 Managing Pricing Strategy
5. Prices should be set according to customers perceptions
of value.
6. Pricing for new products should start as soon as product
development begins.
7. The relevant costs for pricing are the incremental avoidable
costs.
8. A price may be profitable when it provides for incremental
revenues in excess of incremental costs.
9. A central organizing unit should administer the pricing
function. Generally, it is better to avoid letting salespeople
set price, especially without access to profitability
information and specific training in pricing and revenue
management.
10. Pricing management should be viewed as a process and
price setting as a daily management activity, not a once-a-
year activity.

11-25
 Special Pricing Situations
Price Segmentation

Value Chain (Distribution Channel) Pricing

Price Flexibility

Product Life Cycle Pricing

11-26