The pricing of goods and services performs a key strategic role in many firms because of deregulation, informed buyers, intense global competition, slow growth in many markets, and the opportunity for firms to strengthen market position.
	Factors impacting management's decision about how price will be used in marketing strategy:  How buyers will respond to alternative prices; the cost of producing and distributing a product; and legal and ethical considerations

	The influence of price on marketing mix components may vary in different strategy situations.
	Product strategy:  When only one product is involved, the price decision is simplified.  Product quality and features impact pricing strategy as well as an analysis of the product mix and branding strategy
	Distribution strategy:  The needs and motivation of intermediaries must be considered.  Intensive distribution is likely to call for more competitive pricing that does selective or exclusive distribution

B)  Pricing Situations

Situations requiring pricing actions include: Deciding how to price a new product or line of products Evaluating the need to adjust price as the product moves through the product life cycle Changing a positioning strategy that requires modifying the current pricing strategy Deciding how to respond to the pressures of competitive threats

C)  Uses of  Price in Positioning Strategy

	Signal to the buyer:  Provides a basis of comparison
	Instrument of competition:  Can be used to position a firm closer, or farther, from a competitor
	Improving financial performance:  Can impact a financial statement both in the short and long run
	Marketing program considerations:  Price can serve as a substitute for selling effort, etc.

E)  Pricing Objectives

Pricing can achieve one or more of the following objectives:  Gain market position, achieve financial performance, enhance product image, stimulate demand, influence competition

 

A)  Customer Price Sensitivity

	Major challenge is determining how customers will respond to a price change
	The core issue is finding out what value the buyer places on the product or brand
	Price elasticity:  Is the percentage change in quantity sold of a product when the price changes, divided by the percentage change in price.  Some customers will buy more of a product at a higher price.
	Non price factors:  Include quality, uniqueness, availability, convenience, service and warranty.
	Forecasts:  Forecasts of sales are needed for price alternatives

	Composition of product cost:  The first step is to analyze the costs involved in producing and distributing the product.  Also, it is important to estimate the amount of the product cost accounted for by purchases from suppliers
	Volume effect on cost:  The next step in cost analysis is to examine cost and volume relationships
	Competitive Advantage:  The next step is to compare key competitors costs
	Experience effect:  Experience or learning curve analysis indicates that costs and prices for various products decline by a given amount each time the number of units produced doubles.
	Control over costs:  It is useful to know how much influence a company has over its product costs

C)   Competitor Analysis

Must determine:  Which firms represent the most direct competition; how competing firms are positioned on a relative price basis and the extent to which price is used as an active part of their marketing strategies; how successful each firm's price strategy has been; and the key competitors' probable response to altering price strategies

D)  Legal and Ethical Considerations

	Horizontal price fixing:  Sherman Antitrust act prohibits price fixing
	Price discrimination:   Charging different prices without an underlying cost basis is prohibited by the Robinson-Patman act
	Deceptive pricing:  Banned by the FTC

 

Need to determine:  the extent of pricing flexibility; decide how to position price relative to costs; and decide how visible to make the price of the product.

A)   Illustrative Pricing Strategies

	High Active:  Because the brand is expensive, it offers superior value
	High Passive:  Products feature non price factors rather than using high active strategies
	Low Active:  Used when price is important
	Low Passive:  Used by small manufacturers whose products have lower-cost features than those of other suppliers

A)   Determining Specific Prices

	Cost oriented approach: Break even pricing and markup pricing are cost oriented approaches
	Competition oriented pricing:  Competitors' pricing is used
	Demand oriented approaches:  One estimates how much the buyer is willing to pay

B)   Establishing Pricing Policy and Structure

	Pricing policies include consideration of discounts, allowances, returns, and other guidelines
	Pricing structure concerns how individual items in the line are priced in relation to one another.