Creativity in Marketing Market Relations Price Lecture 5

1. Creativity in MarketingMarket RelationsPriceLecture 5 Lars Torsten Eriksson len@hig.se larse@hawaii.edu

2. What Price Would You Charge? You take people out for a boat tour in Pearl Harbor. You charge $ 25. This gives you $ 5 from each passenger. You have $ 15 in fixed costs and $ 5 in variable costs, 20 $ in total. A last minute passenger arrives to the boat saying he only has $ 10 for a ticket. Are to accept his price offer? What is the reason behind your decision?

3. PRICE FIGHTING Maintain price Maintain price and add value Reduce price Increase price and improve quality Launch a low-price fighter line

5. PRICE STRATEGY

6. You may ask How do consumers process and evaluate prices? How should a company set prices initially for products or services? How should a company adapt prices to meet varying circumstances and opportunities? When should a company initiate a price change? How should a company respond to a competitor�s price challenge?

7. PRICE Priset har inte s� mkt att g�ra med the core benefit eller vetenskapliga nyttan Priset varierat Parallellimport Pirate brands and productionPriset har inte s� mkt att g�ra med the core benefit eller vetenskapliga nyttan Priset varierat Parallellimport Pirate brands and production

8. BREAK EVEN? Det �r enkelt i teorin.Det �r enkelt i teorin.

9. PRICE ELASTICITY Price Reactions

10. Q How is the current price set where you work? Who decides and how? When did you bargain last time in buying something? What did you buy? What do you think is the current price for a) MBA education at Harvard (per semester) b) one liter of skim milk c) one gallon of gasoline d) a one month bus pass in Honolulu? Do you consider price to be a good indicator of quality? Give examples when you think it is and when you think not. As a consumer what are the different business practices have you observed with the purpose to make the prices seem to be less than it acutally is? Can you mention (=what is your Evoked Set of) some online domains where you can get price information and compare prices. How often have you used them? What do we mean by the following: Break even Low price sensitivity Margin Mark up Fixed costs Price discrimination

11. Consumer Perceptions vs. Reality for Cars Table 14.2 Overvalued Brands Land Rover Kia Volkswagen Volvo Mercedes Undervalued Brands Mercury Infiniti Buick Lincoln Chrysler

12. You Pay What We Pay 0 % in financing. What was the purpose? The purpose was not to gain profit, but to get rid of the huge stock of cars already produced. GM announced first a tremendous succees in so doing, then a hefty loss for the first half of this year.0 % in financing. What was the purpose? The purpose was not to gain profit, but to get rid of the huge stock of cars already produced. GM announced first a tremendous succees in so doing, then a hefty loss for the first half of this year.

13. Delta announced a $ 100 increase. Done? Followers? Other price changes lately?D Dicscount for repeat buyers? Delta announced a $ 100 increase. Done? Followers? Other price changes lately?D Dicscount for repeat buyers?

15. Consumer Psychology and Pricing Reference prices Price-quality inferences Price cues

16. Possible Consumer Reference Prices Table 14.1 �Fair price� Typical price Last price paid Upper-bound price Lower-bound price Competitor prices Expected future price Usual discounted price

17. Price Cues �Left to right� pricing ($299 versus $300) Odd number discount perceptions Even number value perceptions Ending prices with 0 or 5 �Sale� written next to price

18. When to Use Price Cues Customers purchase item infrequently Customers are new Product designs vary over time Prices vary seasonally Quality or sizes vary across stores

20. Step 1: Selecting the Pricing Objective Survival Maximum current profit Maximum market share Maximum market skimming Product-quality leadership

21. Step 2: Determining Demand Price elasticity of demand Estimating demand curves

22. Step 3: Estimating Costs Target Costing Activity-Based Cost Accounting Accumulated Production Types of Costs

24. COSTS vs LEARNING CURVE

25. Step 4: COMPARE COMPETING ALTERNATIVES Prices

26. Step 5: Selecting a Pricing Method Markup pricing Target-return pricing Perceived-value pricing Value pricing Going-rate pricing Auction-type pricing

27. Auction-Type Pricing English auctions Dutch auctions Sealed-bid auctions

28.

29. Step 6: Selecting the Final Price Impact of other marketing activities Company pricing policies Gain-and-risk sharing pricing Impact of price on other parties

31. Price-Adaptation Strategies Geographical pricing Discounts/allowances Promotional pricing Differentiated pricing

32. Promotional Pricing Tactics Loss-leader pricing Special-event pricing Cash rebates Low-interest financing Longer payment terms Warranties and service contracts Psychological discounting

33. MARKET TESTorDiscount Strategy �This Friday, Saturday & Sunday, a special Market Test will be conducted where 2005 new Nissan prices will be rolled back to 1999 prices.� This was an ad in the Honolulu Advertiser July 18This was an ad in the Honolulu Advertiser July 18

34. Discriminatory Pricing Obs HERR OCH DAMKLIPPNINGAR I sVERIGEObs HERR OCH DAMKLIPPNINGAR I sVERIGE

35. Increasing Prices Delayed quotation pricing Escalator clauses Unbundling Reduction of discounts

36. PAYMENT MODEL Price is one thing The way you pay the price � the payment model � is something else. A price can be paid in many different ways � over the counter, down payments, by card etc.

37. Common Pricing Mistakes Determine costs and take traditional industry margins Failure to revise price to capitalize on market changes Setting price independently of the rest of the marketing mix Failure to vary price by product item, market segment, distribution channels, and purchase occasion

38. COMPARE PRICE

40. Remember