Pricing Strategy of Newspaper

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					MARKETING STRATEGY
  O.C. FERRELL • MICHAEL D. HARTLINE




                          8
                      Pricing Strategy
           The Role of Pricing in
          Marketing Strategy (1 of 2)
• The Seller’s Perspective on Pricing
• Four key issues:
   –   (1) Costs
   –   (2) Demand
   –   (3) Customer value
   –   (4) Competitors’ prices
• The Buyer’s Perspective on Pricing
   – Two key issues:
      • (1) Perceived value
      • (2) Price sensitivity
                                        8-2
          The Role of Pricing in
         Marketing Strategy (2 of 2)
• A Shift in the Balance of Power
   – Buyer’s market
      • Large number of sellers in the market
      • Many substitutes for the product
      • Economy is weak
   – Seller’s market
      • Products are in short supply
      • High demand
      • Economy is strong
• The Relationship Between Price and Revenue
   – Myth #1: When business is good, a price cut will
     increase market share.
   – Myth #2: When business is bad, a price cut will
     stimulate sales.                                   8-3
           Major Determinants of
             Pricing Strategy
•   Pricing Objectives
•   Supply and Demand
•   The Firm’s Cost Structure
•   Competition and Industry Structure
    – Four basic competitive market structures:
       • Pure Competition
       • Monopolistic Competition
       • Oligopoly
       • Monopoly
• Stage of the Product Life Cycle
• Other Elements of the Marketing Mix
                                                  8-4
Regulated Utilities as Monopolies




                                    8-5
Description of Common Pricing Objectives




                  Exhibit 8.1        8-6
Pricing Strategy Over the
   Product Life Cycle




          Exhibit 8.2       8-7
  Price Elasticity of Demand (1 of 2)

• Formula for calculating price elasticity:



• Situations That Increase Price Sensitivity
  –   Availability of product substitutes
  –   Higher total expenditure
  –   Noticeable differences
  –   Easy price comparison
                                               8-8
Price Elasticity of Demand




           Exhibit 8.3       8-9
   Price Elasticity of Demand (2 of 2)
• Situations That Decrease Price Sensitivity
   –   Real or perceived necessities
   –   Lack of product substitutes
   –   Complementary products
   –   Product differentiation
   –   Perceived product benefits
   –   Situational influences
• Price Elasticity and Yield Management
   – Allows simultaneous control of capacity and demand
      • Control capacity by limiting available capacity at
        certain price points
      • Control demand through price changes and
        overbooking capacity
                                                             8-10
Yield Management for
a Hypothetical Model




        Exhibit 8.4    8-11
          Discussion Question

• Discuss the variety of situational factors that
  could come into play and impact elasticity
  in the purchase of each of the following
  products: a) sporting event or concert
  tickets, b) staple goods such as milk, eggs,
  or bread, c) an electric razor, d) eye surgery
  to improve vision.

                                             8-12
            Pricing Strategies (1 of 2)
• Base Pricing Strategies
   –   Price Skimming
   –   Penetration Pricing
   –   Prestige Pricing
   –   Value-Based Pricing (EDLP)
   –   Competitive Matching
   –   Non-Price Strategies
• Adjusting Prices in Consumer Markets
   –   Promotional Discounting
   –   Reference Pricing
   –   Odd-Even Pricing
   –   Price Bundling                     8-13
      Marketing Strategy in Action




• Chrysler’s price skimming strategy for the Pacifica model has not
  been successful in attracting customers. Why do you think the
  $40,000 price tag has not been successful for the Pacifica? What
  do you think Chrysler should do in rethinking its pricing strategy
  for this model?                                                 8-14
Price Bundling




                 8-15
          Pricing Strategies (2 of 2)
• Adjusting Prices in Business Markets
   – Pricing techniques unique to business markets:
      • Trade discounts
      • Discounts and allowances
      • Geographic pricing
      • Transfer pricing
      • Barter and countertrade
   – Price discrimination



                                                      8-16
     Fixed vs. Negotiated Pricing

• Three pricing levels in a negotiated price situation:
   – (1) Opening position
   – (2) Aspiration price
   – (3) Limit
• Guidelines for making concessions:
   – Avoid being the first side to make a concession
   – Start with modest concessions and make them smaller as
     you proceed
   – Avoid making concessions early in the negotiation
   – Do not give up anything without something in return
                                                         8-17
         Discussion Question

• If you were trying to sell your used car
  through the newspaper, what factors would
  determine how you might set your opening
  position, your aspiration price, and your
  limit during the negotiation process?



                                         8-18
Major Online Auction Strategies




             Exhibit 8.5          8-19
Legal and Ethical Issues in Pricing

•   Price Discrimination
•   Price Fixing
•   Predatory Pricing
•   Deceptive Pricing




                                  8-20
          Discussion Question

• One of the key decisions that managers
  often make is to change prices that have
  been set inappropriately. What issues
  should be considered in deciding whether it
  is the price that is wrong, or whether the
  problem lies in another element of the
  marketing mix?

                                          8-21

				
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