PRICING IN THE MARKETING MIX

PRICING IN THE MARKETING MIX (Chapter 10)
< Pricing decision has several unique aspects and is
therefore specialized in nature
< Ultimately, price is only one element of the marketing
mix -- need to consider other 3 elements of the
marketing mix, too
< Important to look at interactions between price and
the other 3 P’s of the marketing mix
Price
Product
Promotion
Distribution

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Pricing and the Product Line
< Products can be designed to facilitate a segmented pricing
strategy, appeal to price sensitive buyers, maximize a cost
advantage, etc. -- individually
< In reality, most companies have multiple products, thereby
creating the need to price the entire product line
simultaneously
< A major influence in product line pricing is the presence of
product substitutes & complements (see illustration)
< Several other means to explore product complementarities
—Current versus future sales
—Sales to related groups of buyers

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Pricing Substitute Products
Example of gas station offering both regular & premium grades of unleaded
gasoline
A price increase on the premium grade leads to a more favorable situation
than predicted -- because of a product substitute effect
Pricing Complementary Products
Example of computer store selling both personal computers & software
A price decrease on computers leads to a more favorable situation than
predicted -- because of the complementary product effect
Adj. $ CM = [Unadj. $
-
[Change in Sales of Substitute
CM]
x $CM of Substitute]
-
[Change in Sales of Complement
x $CM of Complement]

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< In addition to product substitute & complementary
effects, consider psychological factors in pricing the
product line
—logic behind loss leaders
—length of product line (broad - narrow)
—range of prices (low - high) for items in product line

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Pricing and Promotion
< A strong interaction exists between the two because of the
influence of promotion on the 3 inputs to effective pricing
< Price can be a promotional tool
< Relationship between advertising and buyers’ price
sensitivity is key
—Advertising decreases P.S. (unique value, end-benefit,
price-quality effects)
—Advertising increases P.S. (perceived substitutes,
unique-value effects)
< Need to consider interactive effects of price & advertising
on sales
“HIGH” Advertising, “LOW” Price Sales Increase
“HIGH” Price, “HIGH” Advertising Sales Decrease
Overall Effect? (Usually a Sales Increase)

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< Relationship between price & personal selling is
important when latter is needed to communicate
and/or augment the product’s value
< Pricing & personal selling strategies should not be at
odds with one another -- a low price may not be
viewed as a bargain
< Relationship between price & sales promotion is
important when latter is needed to induce trial from
new users and/or existing users (dealing)
< Relationship between price & trade promotion is
important when latter is needed to secure acceptance
from retailers (trade dealing)

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Types of Dealing
Objectives
Benefit consumers, not retailers
No adverse price-quality effect
Target switchers/first-time buyers
Trial Offers
Temporary price cuts (i.e., 20 cents off regular
price) on product itself
Use for new products
Coupons
Convenient to use
Handling cost (high)
Redemption rates (low)
Risk of misredemption/fraud
Rebates
Represent larger discounts
Redemption rates (low)
Handling cost (low)
Free Sample
Small, trial sizes of product given away free to
customers
High cost
Use for new products

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Effectiveness of Dealing?
New brand
Low market share
Temporary
Small $ amounts
Overall part of promotional strategy

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Pricing and Distribution
< Relationship between price & distribution is relevant
since latter is used to augment the image of the product
(prestige, exclusive -- low cost, bargain)
< Necessary to maintain control over distribution of the
product through good channel relations and appropriate
channel price policies
< Maintaining minimum resale prices
< Limiting maximum resale prices

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