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marketing chapter 29 - Chapter 9 Pricing Understanding and...

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Chapter 9 Pricing: Understanding and Capturing Customer Value Previewing the Concepts: Chapter Objectives 1. Discuss the importance of understanding customer value perceptions and company costs when setting prices. 2. Identify and define the other important internal and external factors affecting a firm’s pricing decisions. 3. Describe the major strategies for pricing imitative and new products. 4. Explain how companies find a set of prices that maximize the profits from the total product mix. 5. Discuss how companies adjust their prices to take into account different types of customers and situations. 6. Discuss the key issues related to initiating and responding to price changes. J UST THE B ASICS Chapter Overview Pricing is the second element in the marketing mix. It plays a powerful role, and that role is detailed in this chapter. There are several sections to this chapter and a lot of material to address. The chapter begins with discussing what a price actually is. It makes the point that price is more than just the money the buyer hands over to the seller—the broader view is that the price is the sum of all the values that the buyer exchanges for obtaining or using the product. There is also a brief discussion of dynamic- versus fixed-price policies, and how we as a society have evolved from dynamic to fixed and back to dynamic again. The chapter then moves into the heart of pricing. Both internal and external factors that must be considered when setting price are detailed, as are the three general pricing approaches of cost-based pricing, value-based pricing, and competition-based pricing. The new product pricing strategies of market skimming versus market penetration are also discussed. The chapter then moves into product mix pricing strategies. Five different strategies are outlined, including the often-forgotten category of by-product pricing. Strategies for adjusting prices, such as discount and allowance pricing, segmented pricing and psychological pricing are described, as well as initiating and responding to price changes in the marketplace. Finally, the public policy implications of pricing are covered, including the major laws that pertain to pricing. 199
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Chapter Outline 1. Introduction a. Toys ‘R’ Us emerged in the late 1970s as a toy retailing “category killer,” offering consumers a vast selection of toys at everyday low prices. Smaller stores and toy departments failed because they couldn’t match Toys ‘R’ Us’s selection, convenience, and low prices. b. In the 1990s, however, Wal-Mart offered not just everyday-low-prices on toys, but rock-bottom prices. c. Toys ‘R’ Us fought back by trying to match Wal-Mart’s super low prices, but with disastrous results. By early 2005, Wal-Mart held a 25 percent share of the toy market; Toys ‘R’ Us’s share had fallen to 15 percent.
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