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·Periodic discounting
·Flat-rate versus variable-rate or per-use pricing
·Other pricing mechanisms
·
4. Competing against private labels
·Ways to defend brands against private labels include:
·Add value in ways discussed earlier in this chapter
·Develop new market segments that are less price sensitive
·Build stronger relationships with the channels of distribution
·Prune product lines of sizes or flavors that are not generating
profits for the retainer
·Raise the barriers to entry for private labels by investing in
better customer databases and retention programs
(information technology)
H. Pricing and the Internet
1. Allows quick price comparisons between websites
2. Companies that have both online and offline businesses give
inducements to shop online (lower costs of order processing and ability
to instantly integrate information into corporate information systems
3. Companies are underestimating their ability to build online brands and
charge higher prices
4. Auctions have become a popular market pricing mechanism
I. Global Pricing Issues
1. Consistent global pricing policy is different to implement because of
fluctuations in exchange rates, tariffs, and other taxes that are added onto
imported goods, and price-quality effects of the country of origin.
2. Table 9.4 Page 275 Export Strategies under Varying Currency
Conditions Shows different pricing and other policies under different
currency conditions.
·
Teaching Tips and Strategies from Barbara S. Faries, MBA
The purpose of this chapter is to introduce the concepts involved with strategic
price setting.
Key Terms and Concepts Introduced Include:
·Customer value
·Price discrimination
·Price bands or tiers
·Reservation price
·Pricing elasticity of demand
·Value-in-use
·Dollarmetric measurement
·Conjoint analysis
·Field experiments
·Penetration pricing
·Market share pricing
·Skimming
·Prestige pricing
·Return on sales pricing
·Investment pricing
·Competitive pricing
·Reference price
·Price bundling
·Product-line pricing
·Complementary pricing
·Value pricing
·Periodic discounting
·Flat-rate vs. variable rate pricing
Note: Two recurring themes in this Instructor’s Manual are the first two items:
·Link theory to practice.
·Engage students to link work experience to the concepts demonstrated in
the text.
·Instructors are encouraged to link theory to practice by finding current examples
in the business environment that demonstrate the key concepts above.
·If your class contains those already working in the field, have them describe how
the concepts in theory match those in the actual workplace.
I always find teaching pricing interesting, as some students will know very little,
while others have been actively participated in pricing situations. This chapter clearly
divides situations and settings where certain pricing practices and strategies are used.
I always encourage discussions regarding the connection between the marketing
strategy(ies) and pricing policies. What have been their observations in the marketplace? In
their workplace? If they’ve observed disconnects, how could have this been remedied or
mitigated?
Often, students automatically think that the best market strategy is to be the low
cost seller. (I term this a “WalMart mentality.”) This is a good topic for students to discuss
as it relates to various levels of goods and services.
Another discussion that I find helpful is to talk about pricing practices at various
stages of the product life cycle. If they have current business examples, I have them
analyze them.
Last, I often ask them to discuss the way the reality of price setting in the
workplace. (As an executive, I have found very high profile companies not think through
their pricing or connection to their strategy. Or, I simply see them use a cost-plus
methodology.)
Suggested Supplemental Reading
A recent article from The McKinsey Quarterly (August 2010), “Building Better
Pricing,” can offer additional background in construction of pricing strategies. According to
the article, “Well-managed companies already recognize the critical role pricing plays in
driving performance. A foundation that underpins excellence in pricing is the key to
realizing its potential.”
Instructors may want to read it for background or share with students. Link to the article is:
https://www.mckinseyquarterly.com/Building_a_better_pricing_structure_2652
Review Questions
1. Why is the marketing strategy so important to the pricing decision? Can you think of
some examples in which the strategy and the price appear to be inconsistent?
2. Find other illustrations of companies that have set prices lower than customer value.
Do you think they were set that way intentionally? If so, why?
3. Suppose your company had just developed a new TV set that had TiVo (the digital video
recorder) built into it. What steps would you go through to determine how much more
you would charge (if anything) for such a TV over the stand-alone price?
4. What other products and services exhibit a strong correlation between price and
perceived quality? Are marketing strategies different for such products than for those
for which there is no such natural relationship?
5. What are the implications for consumer welfare (i.e., privacy, safety) of the
proliferation of auction sites on the Web? Are there any regulatory implications?
6. Develop arguments pro and con with respect to customized pricing. What are the
differences in implementing the policy across different product types, e.g., B-to-B,
consumer durable, consumer frequently purchased, and services?
This may be an excellent question to use as an in-class exercise or as a separate project.
In short, customized pricing like customized products have been enabled by advances in
information technology. This can enlarge certain companies’ markets giving them the
ability to achieve greater volumes of sales, customizing products by region or by culture,
etc.
Exercises, Activities, and Projects
Purpose: To help students link theory to real life.
To demonstrate the important implications of pricing issues.
·Have the students engage in a discussion regarding “real-life” pricing situations
in which they may have been involved.
·Have the students research various companies’ pricing strategies and policies.
(Companies of their own choosing or that instructor chooses.)
·Have the students discuss “The WalMart” approach to pricing. When does it pay
to be the low cost seller? How cans this work against a company? How does this
affect positioning and differentiation?
