2. 11-2
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.
3. 11-3
Part of the reason that pricing
is misused and poorly
understood is the common
practice of making it the last
marketing decision. We think
that we must design products,
communications plans, and a
method of distribution before
we have something to price.
We then use pricing tactically to
capture whatever value we can.
T.Nagle, Marketing News, 11/9/98, 4.
STRATEGIC ROLE OF
PRICE
4. 11-4
How Price Fits into the
Positioning Strategy
Positioning Strategy
Product
strategy
Target
market and
objectives
Value-Chain
strategy
Pricing
strategy
Promotion
strategy
5. 11-5
Pricing Situations
New product pricing
Life cycle pricing
Positioning strategy
change
Countering
competitive threats
6. 11-6
Role of Price in
Positioning Strategy
Signal
to the
Buyer
Instrument
of
Competition
Improving
Financial
Performance
Marketing
Program
Consideration
s
7. 11-7
Examples of Pricing
Objectives
Gain market position
Achieve financial
performance
Product positioning
Stimulate demand
Influence competition
9. 11-9
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?
10. 11-10
Buyers’ Perceptions of Value Offerings
of Brands A-E
Perceived
Value
Perceived Price
Superior Value Zone
D A
C
E
B
Inferior Value Zone
11. 11-11
Guide to Cost
Analysis
Determine cost
structure
A
Analyze cost and
volume relationships
B
Analyze competitive
advantage
C
Estimate the effect
of experience on costs
D
Determine the extent
of control over costs
E
12. 11-12
Competitor Analysis
Which firms represent the
most direct competition
Competitor’s positioning on a
relative price basis
How active is price in their
marketing strategies
Competitors’ success with
their pricing strategies
Competitors’ probable
responses to alternative price
strategies
13. 11-13
Pricing Pressures in the
Personal Computer
Market
The personal computer market offers an
interesting look at the effects of intense
competition. Dell, Inc. continually looks to
lower its operating expenses in an effort to
pass savings to customers. The result over
time has enabled Dell to profitably grow at a
multiple of the industry, which has had a
negative effect on companies such as
Hewlett-Packard Co. The pricing pressure on
rivals is one of the reasons that led to the
merger between Compaq Computer and H-P.
The aggressive price competition resulted in
H-P’s PC unit reporting a loss in 3rd
Quarter
2003. A major competitive hurdle for H-P is
Dell’s low-cost direct-sales business model.
Sources: “A Nasty Surprise from HP,” Business Week, September 1, 2003; Gary McWilliams and Pui-Wing
Tam, “Dell Price Cuts Put a Squeeze on Rival H-P,” The Wall Street Journal, August 21, 2003, B1 and B7.
15. 11-15
SELECTING THE
PRICING STRATEGY
How much flexibility
exists?
How to position price
relative to costs?
How visible to make the
price of the product?
17. 11-17
Price too high;
little or no
demand
Price Floor
Price
Ceiling
Nature of demand in target
market
Business and marketing
strategy
Product differentiation
Competitors’ prices
Prices of substitutes
Product costs
Rangeoffeasibleprices
Price too low; no profit possible
How Much Flexibility
Exists?
21. 11-21
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
26. 11-26
COMMUNICATION
OBJECTIVES
ROLE OF PROMOTION
COMPONENTS
PROMOTION
BUDGET
PROMOTION COMPONENT
STRATEGIES
Coordination
with Product,
Distribution,
and Price
Strategies
DEVELOPING THE
PROMOTION
STRATEGY
Advertising Sales
Promotion
Public
Relations
Personal
Selling
Direct
Marketing
Interactive/
Internet
Marketing
MARKET TARGETING AND
POSITIONING STRATEGIES
INTEGRATE AND IMPLEMENT
PROMOTION COMPONENT
STRATEGIES
EVALUATE
EFFECTIVENESS OF
PROMOTION STRATEGY
27. 11-27
Percent of Sales
Fixed percent of sales,
often based on past
expenditure patterns.
Comparative Parity
Budget is based largely
upon what competition is
doing.
Objective and Task
Set objectives and then
determine tasks (and costs)
necessary to meet the
objectives.
Percent of Sales
The method is very arbitrary.
Budget may be too high
when sales are high and too
low when sales are low.
Comparative Parity
Differences in marketing
strategy may require different
budget levels.
Objective and Task
The major issue in using this
method is deciding the right
objectives so measurement
of results is important.
Features Limitations
Budgeting Methods
28. 11-28
Illustrative Influences on
Promotions Strategy
Number and dispersion of buyers
Buyers’ information needs
Size and importance of purchase
Distribution
Product Complexity
Post-purchase contact required
Small
High
Large
Direct
High
Yes
Large
Low
Small
Channel
Low
No
Advertising/
sales
promotion
driven
Balanced Personal
selling driven
29. 11-29
Increasing Uncertainty
About Impact on
Purchasing Behavior
Increasing Difficulty
of Measurement
Type of Objective
• Exposure
• Awareness
• Attitude
Change
• Sales
• Profit
Alternative Levels for Setting
Advertising Objectives
30. 11-30
Determining
Advertising Objectives
1. Does the advertising aim at immediate
sales?
2. Does the advertising aim at near-term
sales?
3. Does the advertising aim at building a long-
range consumer franchise?
4. Does the advertising aim at helping increase
sales?
5. Does the advertising aim at some specific
step that leads to a sale?
6. How important are supplementary benefits of
advertising?
7. Should the advertising impart information
needed to consummate sales and build
customer satisfaction?
8. Should advertising build confidence and
goodwill for the corporation?
9. What kind of images does the company wish
to build?
Source: from Exhibit 12-5.
31. 11-31
Budget Determination
OBJECTIVE AND TASK
METHOD HAS A
STRONGER SUPPORTING
LOGIC THAH THE OTHER
METHODS.
Media/
Scheduling
Creative
Strategy
Budget
Determination
32. 11-32
Product Distribution Price Promotion
Advertising
(How to communicate
intended positioning
to buyers and others
influencing the
purchase.)
Creative
Strategy
CREATIVE
STRATEGYThe creative strategy is guided by the
market target and the positioning
strategy.
Provide a unifying
concept that binds
together the various
parts of the
advertising campaign.
33. 11-33
SPREADING the Word on the Net
Online advertising is growing at a sizzling 29% rate, to $9.3
billion this year. Here’s why:
SEARCH WORKS
Google and Yahoo! have demonstrated the power of the Web
by using customers’ search queries to connect them with
advertisers. This combination fuels a search industry expected
to hit $3.9 billion this year.
CUSTOMERS ARE ONLINE
More than half of American households have always-on Net
connections. And the Web reaches millions at the office. The
Big Three portals-Yahoo, AOL, and MSN-reach a combined 50
million a day-twice the TV audience of a World Series game.
VIDEO ROCKS
The adoption of broadband, which can handle video, lets
advertisers put TV-like ads online. Longer spots by BMW and
Adidas have reached cult status. As demand for video soars,
portals sell choice slots in advance, much like TV’s up-front
sales.
FEEDBACK IS INSTANT
Marketers and online publishers have tools to track an ad’s
performance in real time, allowing them to make quick
adjustments if customers aren’t clicking. This turns the Net into
a vast marketing lab. And as video grows, it becomes a test
bed for TV ads.
CUSTOMERS LEAVE TRAILS
It was an empty promise during the dot-com days, but now
advertisers have the technology to follow customers, click by
click, and to hit them with relevant ads. The upshot? No wasted
money peddling dog food to cat owners.
Source: Stephen Baker, “The Online Ad Surge,” Business Week, November 22, 2004, 79.
34. 11-34
Access to
the target
audience
Cost of
reaching the
target group(s)
Favorable
access to
cost
Unfavorable
access to cost
Factors Influencing
Media Decisions
36. 11-36
SALES PROMOTION consists of
various incentives, mostly short
term, intended to stimulate
quicker and/or greater purchase
of particular goods/services by
end-user consumers or value
chain organizations.
The strategy process is similar
to the design of advertising
strategy.
SALES PROMOTION
STRATEGY
