Sellers are more certain about costs than about demand oWhen all firms in industry use this pricing method, prices tend to be similar, minimizing price competition Break-even pricing (target return pricing): setting price to break even on costs of making & marketing a product, or setting price to make target return oBreak-even chart As price increases, demand decreases, and market may not buy lower volume needed to break even at higher price Competition-Based Pricing Competition-based pricing: involves setting prices based on competitors’ strategies, costs, prices, & market offerings
Consumers base judgments of product’s value on prices that competitors charge for similar productsHow does company’s market offering compare w/competitors’ offerings in terms of customer value? oIf consumers perceive that company’s product or service provides greater value, company can charge higher price oIf consumers perceive less value relative to competing products, company must either charge lower price or change customer perceptions to justify higher priceHow strong are current competitors & what are their current pricing strategies? oIf company faces host of smaller competitors charging high prices relative to value they deliver, it might charge lower prices to drive weaker competitors out of market oIf market is dominated by larger, low-price competitors, company may decide to target unserved market niches w/value-added products at higher pricesSometimes, changes in technology force marketers to rethink product offerings & pricing strategies What principle should guide marketers’ decisions about what price to charge relative to those of competitors? oNo matter what price marketers charge, they must be certain to give superior value for that price Overall Marketing Strategy, Objectives, and MixBefore setting price, company must decide on overall marketing strategy forproduct or serviceIf company has selected its target market & positioning carefully, then its marketing mix strategy will be fairly straightforwardoEx: when Honda developed its Acura brand to compete w/European luxury-performance cars, it needed to set prices in line w/luxury performance cars Firm can set prices to attract new customers or to profitably retain existing ones
oCan set prices low to prevent competition from entering market, or set prices at competitors levels to stabilize market oCan price to keep loyalty & support of resellers or to avoid government intervention oPrices can be reduced temporarily to create excitement for brand Or, product may be priced to help sales of other products in company’s linePricing decisions must be coordinated w/product design, distribution, & promotion decisions to form consistent & effective integrated marketing program oDecisions made for other marketing mix variables may affect pricing decisionsCompanies often position products on price & then tailor other marketing mix decisions to prices they want to change
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- Pricing, o Company, Price