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Marketing:AnIntroductionFifteenthEditionChapter9Pricing:UnderstandingandCapturingCustomerValueCopyright©2023,2020,2017PearsonEducation,Inc.AllRightsReservedObjectivesOutline(1of2)9.1Defineprice,identifythethreemajorpricingstrategies,anddiscusstheimportanceofunderstandingcustomer-valueperceptions,companycosts,andcompetitorstrategieswhensettingprices.9.2Identifyanddefinetheotherimportantexternalandinternalfactorsaffectingafirm’spricingdecisions.9.3Describethemajorstrategiesforpricingnewproducts.ObjectivesOutline(2of2)9.4Explainhowcompaniesfindasetofpricesthatmaximizestheprofitsfromthetotalproductmix.9.5Discusshowcompaniesadjustandchangetheirpricestotakeintoaccountdifferenttypesofcustomersandsituations.9.6Discussthemajorpublicpolicyconcernsandkeypiecesoflegislationthataffectpricingdecisions.FirstStop:PelotonForthePelotonfaithful,itisn’tjustaboutthepriceofaPelotonbike.It’saboutthevaluesreceivedfrommembershipinthedynamic,closelyconnectedPelotoncommunity.ObjectiveOutline9.1Defineprice,identifythethreemajorpricingstrategies,anddiscusstheimportanceofunderstandingcustomervalueperceptions,companycosts,andcompetitorstrategieswhensettingprices.PriceAmountofmoneychargedforaproductorserviceDeterminesafirm’smarketshareandprofitabilityProducesrevenueFigure9.1ConsiderationsinSettingPriceCustomerValue-BasedPricingBasedonbuyers’perceptionsofvalueratherthanontheseller’scostPriceisconsideredbeforethemarketingprogramisset.Typesofvalue-basedpricing:Good-valuepricingValue-addedpricingFigure9.2Value-BasedPricingversusCost-BasedPricingValue-AddedPricingValue-addedpricing:LuxuryouterwearbrandCanadaGoosecreateshigh-quality,carefullycraftedproductsthatkeepyouwarmintheharshestclimates,addingvaluethatmeritsitspremiumprices.Cost-BasedPricingBasedonthecostsofproducing,distributing,andsellingtheproductplusafairrateofreturnforeffortandriskTypesofcosts:Fixedcosts(overhead)VariablecostsTotalcostsTypesofCost-BasedPricingCost-pluspricing(markuppricing)AddingastandardmarkuptothecostoftheproductBreak-evenpricing(targetreturnpricing)Settingpricetobreakevenonthecostsofmakingandmarketingaproduct,orsettingpricetomakeatargetreturnFigure9.3Break-EvenChartforDeterminingTargetReturnPriceandBreak-EvenVolumeCompetition-BasedPricing(1of2)Settingpricesbasedoncompetitors’strategies,costs,prices,andmarketofferingsCompanyshouldaskseveralquestionstoassesscompetitors’pricingstrategies:Howdoesthecompany’smarketofferingcompareintermsofcustomervalue?Howstrongarecurrentcompetitors?Whataretheircurrentpricingstrategies?Competition-BasedPricing(2of2)Pricingversuscompetitors:Despiteitspremiumprices,customersbelievethatCaterpillargivesthemalotmorevalueforthepriceoverthelifetimeofitsmachines.ObjectiveOutline9.1SummaryThethreemajorpricingstrategiesincludeCustomervalue–basedpricingCost-basedpricingCompetition-basedpricingCustomervalueperceptions,companycosts,andcompetitorstrategiesareimportantconsiderationswhensettingprices.ObjectiveOutline9.2Identifyanddefinetheotherimportantexternalandinternalfactorsaffectingafirm’spricingdecisions.OtherInternalandExternalConsiderationsAffectingPriceDecisionsInternalfactorsOverallmarketingstrategy,objectives,andmixOrganizationalconsiderationsExternalfactorsMarketanddemandEconomyImpactonotherpartiesinitsenvironmentOverallMarketingStrategy,Objectives,andMixPricingdecisionsmustcoordinatewithpackaging,promotion,anddistributiondecisions.Positioningmaybebasedonprice.Targetcostingstartswithanidealsellingprice,thentargetscoststhatensurethepriceismet.Nonpricepositionscanbecreatedtodifferentiatethemarketingoffer.OrganizationalConsiderationsManagementdecideswhoshouldsetprices.VariesdependingonthesizeandtypeofcompanySmallcompanies—TopmanagementLargecompanies—DivisionalorproductmanagersIndustrieswithpriceasthekeyfactor—PricingdepartmentsPricinginDifferentTypesofMarketsPurecompetitionMonopolisticcompetitionOligopolisticcompetitionPuremonopolyPricinginMonopolisticCompetitionMarketsPricinginmonopolisticcompetitionmarkets:Bosesetsitspremiumaudioproductsapartnotbypricebutbythepowerofitsbrandandthehostofdifferentiatingfeatures.Figure9.4DemandCurvePriceElasticityofDemandMeasureofthesensitivityofdemandtochangesinpriceInelasticdemand:Demandhardlychangeswithasmallchangeinprice.Elasticdemand:Demandchangesgreatlywithasmallchangeinprice.EconomyFactorsimpactingpricingstrategiesBoomorrecessionInflationInterestratesResponsestothefrugalityofpostrecessionconsumersCutpricesandofferdiscountsDevelopmoreaffordableitemsRedefinevaluepropositionsOtherExternalFactorsCompanymustconsiderseveralotherfactorsinitsexternalenvironmentwhensettingprices.ResellersGovernmentSocialconcernsObjectiveOutline9.2SummaryFactorsaffectingafirm’spricingdecisions:Internal—marketingstrategy,objectives,marketingmix,andorganizationalconsiderationsExternal—natureofmarket,demand,economy,resellerneeds,andgovernmentactionsObjectiveOutline9.3Describethemajorstrategiesforpricingnewproducts.NewProductPricingStrategies(1of2)Market-skimmingpricing(priceskimming)SettingahighpricetoskimmaximumrevenuesfromthesegmentswillingtopaythehighpriceCompanymakesfewerbutmoreprofitablesalesMarket-penetrationpricingSettingalowpricetoattractalargenumberofbuyersandalargemarketshareNewProductPricingStrategies(2of2)Penetrationpricing:AmazonusedpenetrationpricingforAmazonPrimeVideoinmorethan240internationalmarketstobuildacustomerbaseandmakeheadwayagainsthigherpricedNetflix.ObjectiveOutline9.3SummaryStrategiesforpricingnewproductsincludeMarket-skimmingpricingMarket-penetratingpricingObjectiveOutline9.4Explainhowcompaniesfindasetofpricesthatmaximizestheprofitsfromthetotalproductmix.ProductMixPricingStrategiesTable9.1ProductMixPricingPricingSituationDescriptionProductlinepricingSettingpricesacrossanentireproductlineOptional-productpricingPricingoptionaloraccessoryproductssoldwiththemainproductCaptive-productpricingPricingproductsthatmustbeusedwiththemainproductBy-productpricingPricinglow-valueby-productstogetridoformakemoneyonthemProductbundlepricingPricingbundlesofproductssoldtogetherProductMixPricingCaptive-productpricing:NintendomakeslittleornoprofitonitsSwitchvideogameconsolebutmakesupforitthroughsalesofhigher-marginvideogames.ObjectiveOutline9.4SummaryThefirmusesthefollowingpricingstrategiestomaximizetheprofitsfromthetotalmix:ProductlinepricingOptionalproductsCaptiveproductsBy-productsProductbundlesObjectiveOutline9.5Discusshowcompaniesadjustandchangetheirpricestotakeintoaccountdifferenttypesofcustomersandsituations.PriceAdjustmentStrategiesTable9.2PriceAdjustmentsStrategyDescriptionDiscountandallowancepricingReducingpricestorewardcustomerresponsessuchasvolumepurchases,payingearly,orpromotingtheproductSegmentedpricingAdjustingpricestoallowfordifferencesin
customers,products,or
locationsPsychologicalpricingAdjustingpricesforpsychologicaleffectPromotionalpricingTemporarilyreducingpricestospurshort-runsalesGeographicalpricingAdjustingpricestoaccountforthegeographiclocationofcustomersDynamicpricingAdjustingpricescontinuallytomeetthe
characteristicsandneedsof
individualcustomersandsituationsInternationalpricingAdjustingpricesforinternationalmarketsDiscountandAllowancePricingDiscount—astraightreductioninpriceonpurchasesduringastatedperiodoftimeoroflargerquantitiesCash,quantity,functional,andseasonaldiscountsAllowance—promotionalmoneypaidtoretailersforanagreementtofeaturethemanufacturer’sproductsinsomewayTrade-inandpromotionalallowancesSegmentedPricingSellingaproductorserviceattwoormoreprices,wherethedifferenceinpricesisnotbasedondifferencesincostsFormsofsegmentedpricing:Customer-segmentpricingProductformpricingLocation-basedpricingTime-basedpricingPsychologicalPricingConsidersthepsychologyofpricesandnotsimplytheeconomicsThepricesayssomethingabouttheproduct.Referenceprices:PricesthatbuyerscarryintheirmindsandrefertowhenlookingatagivenproductPromotionalPricingTemporarilypricingproductsbelowthelistpricetoincreaseshort-runsalesFormsofpromotionalpricing:Discountsandspecial-eventpricingLimited-timeoffersandcashrebatesLow-interestfinancingandlongerwarrantiesFreemaintenanceGeographicalPricingFOB-originpricingUniform-deliveredpricingZonepricingBasing-pointpricingFreight-absorptionpricingDynamicandPersonalizedPricing(1of2)Dynamicpricing:AdjustingpricescontinuallytomeetthecharacteristicsandneedsofindividualcustomersandsituationsPrevalentonlinewheretheInternetintroducesanewageoffluidpricingDynamicandPersonalizedPricing(2of2)Dynamicpricingbenefitsbothsellersandbuyers.ArmedwithmobilesappslikeShopSavvy,shopperstakeadvantageoftheconstantpriceskirmishesamongsellers,snapupgooddeals,andleverageretailerprice-matchingpolicies.InternationalPricingPricedecisionsofinternationalcompaniesSetauniformworldwidepriceAdjustpricestoreflectlocalmarketconditionsandcostconsiderationsPriceschargeddependonmanyfactorsEconomicconditionsCompetitivesituationsLawsandregulationsNatureofthewholesalingandretailingsystemConsumerperceptionsandpreferencesCompany’smarketingobjectivesCostsofsellinginanothercountryObjectiveOutline9.5SummaryCompaniesapplyavarietyofpriceadjustmentstrategies:DiscountandallowancepricingSegmentedpricingPsychologicalpricingPromotionalpricingGeographicalpricingDynamicpricingInternationalpricingObjectiveOutline9.6Discussthemajorpublicpolicyconcernsandkeypiecesoflegislationthataffectpricingdecisions.InitiatingPriceChangesReasonsforpricecuts:ExcesscapacityFallingdemandAttempttodominatethemarketReasonsforpriceincreases:CostinflationOver-demandReactionstoPriceChangesBuyer’sperspectivePriceincrease:Productismoreexclusiveorbettermade.Companyisbeinggreedy.Pricecut:Brandwantstogetabetterdealonanexclusiveproduct.Product’squalityhasbeenreduced.Company’simagehastarnished.Competitor’sperspectivePricecut:Companyistryingtograbalargermarketshare.Companyisdoingpoorlyandtryingtoboostitssales.Companywantsthewholeindustrytocutpricestoincreasetotaldemand.Figure9.5RespondingtoCompetitorPriceChangesFigure9.6PublicPolicyIssuesinPricingObjectiveOutline9.6SummaryCustomers’andcompetitors’reactionsmustbeconsideredwheninitiatingapricechange.Buyerreactionsareinfluencedbythemeaningcustomersseeinthepricechange.Competitors’reactionsflowfromasetreactionpolicyorananalysisofeachsituation.Anyresponsetoacompetitor’spricechangeshouldconsidermanyfactors.FinalThoughtsWhyiscost-basedpricingnottherightwaytopriceeverything?Marketing:AnIntroductionFifteenthEditionChapter10MarketingChannels:DeliveringCustomerValueCopyright©2023,2020,2017PearsonEducation,Inc.AllRightsReservedObjectivesOutline(1of2)10.1
Explainwhycompaniesusemarketingchannelsanddiscussthefunctionsthesechannelsperform.10.2Discusshowchannelmembersinteractandhowtheyorganizetoperformtheworkofthechannel.10.3Identifythemajorchannelalternativesopentoacompany.ObjectivesOutline(2of2)10.4Explainhowcompaniesselect,motivate,andevaluatechannelmembers.10.5Discussthenatureandimportanceofmarketinglogisticsandintegratedsupplychainmanagement.FirstStop:AirbnbAirbnb’schanneldisruptionhassignificantlyreshapedthehabitsofmanyoftheworld’svacationtravelers.WithAirbnb,you“belongAnywhere.”ObjectiveOutline10.1Explainwhycompaniesusemarketingchannelsanddiscussthefunctionsthesechannelsperform.SupplyChainsUpstreampartnerssupplytherawmaterials,components,parts,information,finances,andexpertiseneededtocreateaproductorservice.Downstreampartnersserveasdistributionchannelsthatlinkthefirmanditscustomers.ValueDeliveryNetwork(1of2)Anetworkcomposedofthecompany,suppliers,distributors,and,ultimately,customerswhopartnerwitheachothertoimprovetheperformanceoftheentiresystemindeliveringcustomervalueValueDeliveryNetwork(2of2)Valuedeliverynetwork:Inmakingandmarketingitslinesofcars,Toyotamanagesahugenetworkofpeoplewithinthecompanyplusthousandsofoutsidesuppliers,dealers,andmarketingservicefirmsthatworktogethertodeliverthebrand’s“Let’sGoPlaces”and“Let’sGoBeyond”promises.MarketingChannels(DistributionChannels)InterdependentorganizationsthathelpmakeaproductorserviceavailableforuseorconsumptionChanneldecisionsAffecteveryothermarketingdecisionCanleadtocompetitiveadvantageMayinvolvelong-termcommitmentstootherfirmsFigure10.1
HowaDistributorReducestheNumberofChannelTransactionsHowChannelMembersAddValueIntermediariescreategreaterefficiencyinmakinggoodsavailabletotargetmarkets.Marketingintermediariestransformtheassortmentsofproductsmadebyproducersintotheassortmentswantedbyconsumers.Intermediariesbridgethemajortime,place,andpossessiongapsthatseparategoodsandservicesfromusers.KeyFunctionsPerformedbyChannelMembersHelptocompletetransactionsInformationPromotionContactMatchingNegotiationHelptofulfillthecompletedtransactionsPhysicaldistributionFinancingRisktakingNumberofChannelLevels(1of2)Channellevel:AlayerofintermediariesthatperformsworkinbringingtheproductanditsownershipclosertothefinalbuyerDirectmarketing
channel:NointermediarylevelsIndirectmarketingchannels:OneormoreintermediarylevelsNumberofChannelLevels(2of2)Typesofflowsthatconnecttheinstitutionsinthechannel:PhysicalflowofproductsFlowofownershipPaymentflowInformationflowPromotionflowFigure10.2
ConsumerandBusinessMarketingChannelsObjectiveOutline10.1SummaryValuedeliverynetworkIntermediariesformthemarketingchannel(ordistributionchannel)Marketingchannelfunctions:Transaction,information,communication,matching,negotiation,physicaldistribution,financing,andrisktakingObjectiveOutline10.2Discusshowchannelmembersinteractandhowtheyorganizetoperformtheworkofthechannel.ChannelBehavior(1of2)Channelconflict:Disagreementsamongmarketingchannelmembersongoals,roles,andrewardsHorizontalconflictoccursamongfirmsatthesamelevelofthechannel.Verticalconflictoccursbetweendifferentlevelsofthesamechannel.ChannelBehavior(2of2)“Channelconflict:AhighleveloffranchiseediscontentisworrisometoMcDonald’s.There’sahugeconnectionbetweenfranchiseesatisfactionandcustomerservice.Figure10.3
ComparisonofConventionalDistributionChannelwithVerticalMarketingSystemVerticalMarketingSystemsAverticalmarketingsystem(VMS)consistsofproducers,wholesalers,andretailersactingasaunifiedsystem.TherearethreetypesofVMSs:CorporateContractualAdministeredHorizontalMarketingSystem(1of2)Twoormorecompaniesatoneleveljointogethertofollowanewmarketingopportunity.HorizontalMarketingSystem(2of2)Horizontalmarketingsystems:TargetpartnerswithCVSHealth,whichoperatesstores-within-storestothebenefitofall—Target,CVS,andtheirmutualcustomers.MultichannelDistributionSystemsAsinglefirmsetsuptwoormoremarketingchannelstoreachcustomersegments.Advantages:ExpansionofsalesandmarketingcoverageTailor-madeproductsandservicesforthespecificneedsofcustomersegmentsDisadvantages:HardertocontrolGeneratesconflictFigure10.4
MultichannelDistributionSystemDisintermediation(1of2)OccurswhenproductorserviceproducerscutoutmarketingchannelintermediariesorwhenradicallynewtypesofchannelintermediariesdisplacetraditionalonesDisintermediation(2of2)Disintermediationanddisruption:Lyftandotherinnovativeapp-basedrideservicesarerapidlydisintermediatingconventionaltaxicabandurbantransportationsystemsbyofferingbettercustomerexperiencesatlowerfares.ObjectiveOutline10.2SummaryHorizontalandverticalchannelconflictConventionaldistributionsystem,verticalmanagementsystem(VMS),andhorizontalmarketingsystemMultichanneldistributionsystemDisintermediationObjectiveOutline10.3Identifythemajorchannelalternativesopentoacompany.ChannelDesignDecisionsMarketingchanneldesigninvolvesdesigningeffectivemarketingchannelsby:AnalyzingcustomerneedsSettingchannelobjectivesIdentifyingmajorchannelalternativesEvaluatingthealternativesMajorChannelAlternativesTypesofintermediariesreferstochannelmembersavailabletocarryoutchannelwork.NumberofintermediariestouseIntensivedistributionExclusivedistributionSelectivedistributionResponsibilitiesofeachchannelmemberDesigningInternationalChannelsChannelstrategiesshouldbeadaptedtotheexistingstructureswithineachcountry.Distributionsystemscanhavemanylayersandalargenumberofintermediaries.Customsandgovernmentregulationscanrestrictdistributioninglobalmarkets.ObjectiveOutline10.3SummaryChanneldesignbeginswithassessingneeds,objectivesandconstraintsCompanydeterminesmajorchannelalternativesTypes,numberofintermediariesandchannelresponsibilitiesChannelalternativesevaluatedaccordingtoeconomic,control,andadaptivecriteriaChannelmanagement—selectingqualifiedintermediaries,motivatingthemandevaluatingregularlyObjectiveOutline10.4Explainhowcompaniesselect,motivate,andevaluatechannelmembers.ChannelManagementDecisions(1of2)SelectingchannelmembersManagingandmotivatingchannelmembersEvaluatingchannelmembersChannelManagementDecisions
(2of2)Selectingchannels:ThechannelfeudbetweenFedExfromAmazonrisksdamagingbothcompanies’opportunitieswhileatthesametimepotentiallyinconveniencingtheirmutualcustomers.PublicPolicyandDistributionDecisionsExclusivedistributionExclusivedealingExclusivearrangements(ClaytonAct)arelegalaslongasthepartiesDonotsubstantiallylessencompetitionortendtocreateamonopolyEnterintotheagreementvoluntarilyObjectiveOutline10.4SummaryMarketingchannelmanagementcallsforselecting,managing,andmotivatingindividualchannelmembersandevaluatingtheirperformanceovertime.Companymustsellnotonlythrough
theintermediariesbutalsowith
them.ObjectiveOutline10.5Discussthenatureandimportanceofmarketinglogisticsandintegratedsupplychainmanagement.MarketingLogistics(PhysicalDistribution)Planning,implementing,andcontrollingthephysicalflowofmaterials,finalgoods,andrelatedinformationfrompointsoforigintoconsumptionCustomer-centeredlogistics:MarketplacebackwardstothefactoryorsourcesofsupplyOutboundlogisticsInboundlogisticsReverselogisticsFigure10.5
SupplyChainManagementMarketingLogisticsandSupplyChainManagementThegoalofmarketinglogisticsistodeliveratargetedlevelofcustomerserviceattheleastcost.LogisticsfunctionsincludeWarehousingInventorymanage
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