Integrated Marketing Communications and Promotion
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Transcript Integrated Marketing Communications and Promotion
PRICING
Often
the only marketing mix
variable allowing for immediate
competitive response
Important part of product
positioning
Long term effects of pricing
decisions--your decisions may
come back to haunt you!
MKTG 370
PRICING/DISTRIBUTION
Lars Perner, Instructor
1
One View of Price
Price
=
resources given up
_____________________________________
goods received
E.g., 12 bullets for
$6.00 = $0.50 per
bullet
----> several different
ways to change
prices
MKTG 370
PRICING/DISTRIBUTION
Lars Perner, Instructor
2
Introductory Effects
In an experiment,
laundry detergent was
introduced at $0.49 in
one condition and
$0.79 in another.
After 8 weeks, price
was raised to $0.79 for
low price intro
condition.
There were higher
cumulative sales in
high price intro.
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1200
1000
800
Units
sold
Low price
intro
High price
intro
600
400
200
0
PRICING/DISTRIBUTION
8
16
Weeks
Lars Perner, Instructor
3
Ways to Change Prices
Sticker
price
Quantity (e.g., smaller candy bars for
same price and/or fewer products per
package)
Quality (charge separately for services or
“dilute” product)
Terms (e.g., charge for delivery)
MKTG 370
PRICING/DISTRIBUTION
Lars Perner, Instructor
4
Some Approaches to Pricing
Cost-plus: Add fixed percentage markup
Penetration pricing: low intro price ---> volume
Skimming: high intro price ---> take advantage of price
insensitive consumers
Buyer-based
• perceived value
• going-rate (competition)
GREED
IS
GOOD!
---> Balancing cost and
market considerations
MKTG 370
PRICING/DISTRIBUTION
Lars Perner, Instructor
5
Consumer Price Awareness
A
survey revealed of consumers
who had just selected a product
suggested::
• Avg. time spent before departing
from product area: 12 seconds
• Avg. no. of products inspected:
1.2; only 21.6% claimed to check
price of non-chosen brand
• 55.6% could state price of just
chosen product within 5%
MKTG 370
PRICING/DISTRIBUTION
Lars Perner, Instructor
6
Consumer Reference Prices
Consumers typically have some
expectation of what they will pay. This
is based on:
• previous experience
• common sense
• perceived fairness
Two kinds of reference prices:
• Internal: Based on consumer’s
memory.
• External: Based on environment
(e.g., signs, other products in the
store)
MKTG 370
PRICING/DISTRIBUTION
Lars Perner, Instructor
7
Internal Reference Prices
Consumers tend to develop some memory of prices of
frequently purchased items ---> to make store prices
look low, you may want to price especially salient
products lower
More knowledgeable consumers typically have tighter
price range expectations
Reference prices are constantly updated to some
extent, but are hard to change upwards--certain
unreasonable “stimuli” (prices) may be rejected as
unreal
Consumer reference prices tend to be lower than actual
prices ---> “sticker shock”
MKTG 370
PRICING/DISTRIBUTION
Lars Perner, Instructor
8
External Reference Prices
Reference
prices
provided by seller or
environment
E.g.,
• “Was $100.00; now
$69.95”
• “MSRP $3.99; our price
$2.49”
• “Sold elsewhere for
$20.00; our price
$14.99”
MKTG 370
PRICING/DISTRIBUTION
Lars Perner, Instructor
9
The Promotion Signal
A
segment of consumers will
respond to negligible
discounts--e.g., “SALE!
$3.95 (Was $4.02).
However, merely placing a
sign “EVERYDAY LOW PRICE”
randomly also increased
sales of affected products.
MKTG 370
PRICING/DISTRIBUTION
SALE!
Hurry!
Lars Perner, Instructor
10
Odd/Even Pricing--Does It Have
an Impact?
Theory:
$3.00 is rounded to $3.00 while $2.99
is rounded to “$2.00 plus change”
Reality: Studies in U.S. have found some
impact; no impact found in Germany
Note that odd pricing may signal receiving a
bargain, which may nor may not be compatible
with the desired product image
Odd pricing has typically been used by tradition
(initially implemented to force cashiers to ring
up purchases).
MKTG 370
PRICING/DISTRIBUTION
Lars Perner, Instructor
11
Pricing Interests of Retailers
and Manufacturers
Retailers
generally seek to maximize category
profits--for most product categories, price cuts
lead to switching between brands--not higher
category sales. Thus, retailers are reluctant to
pass through any price cuts to consumers.
In the opposite direction, manufacturers may also
resent their products being used as loss leaders
(this is believed to hurt brand image).
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PRICING/DISTRIBUTION
Lars Perner, Instructor
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