MKT 300 1st Edition Lecture 17 Outline of Last Lecture I. The Role of Price in the Marketing MixII. 1st C: Company ObjectivesIII. 2nd C: CustomersIV. 3rd C: CostsV. Break Even AnalysisVI. 4th C: CompetitionOutline of Current Lecture I. Strategic Pricing MethodsII. Pricing StrategiesIII. Everyday Low pricing vs. High/Low pricingIV. Price-Quality RelationshipV. New Product Pricing StrategiesVI. Price Tactics Aimed at CustomerVII. Business to Business Pricing Tactics and DiscountsVIII. Legal Aspects and Ethics of PricingCurrent LectureI. Strategic Pricing Methodsa. Tori Burch (2006) launched her ballet flat for $195: priced between luxury and cheap; kept them exclusive (pricing strategy)b. Ralph Lauren: higher price, high end bags/watches/jewelry; polo shirts not in the front of the storec. Coach in trouble—sold merchandise at Macy’s that was nearby an outlet store: became a pricing problem (Gucci in same position—diluted exclusivity/brand image)d. Wendy’s doing well: introduce upscale Pretzel bun burger (premium item)e. McDonald’s wings were expensive and a failf. Domino’s vs Pizza Hut: Domino’s doing good with online ordering and new productsThese notes represent a detailed interpretation of the professor’s lecture. GradeBuddy is best used as a supplement to your own notes, not as a substitute.i. Domino’s has marketed well; see pizza being made in house (have to havevarieties; can’t just rely on price)g. Companies change package sizei. Paying the same, but getting less—downsizing (with food and detergent) and de-sheeting (with paper towels and toilet paper)ii. People notice price change typically before they notice ounce changeII. Pricing Strategiesa. Cost-based: add up the costs, then add a percentage of the markup to make sure costs are coveredb. Competitor-based: competitive parity: price set similar to competition’s; status quo pricing: change prices whenever a competitor does soc. Value-based: give consumers quality; they feel as if they’re getting benefits with what they’re paying for (fair price)III. Everyday Low Pricing vs. High/Low Pricinga. Both creates value in different waysb. Everyday Low Pricing (EDLP) saves consumer search costs of finding the lowest overall pricei. Walmart is an EDLP storeii. The customer knows he will get a low price across the boardiii. Saves time from the search/coupon cuttingc. High/Low Pricing provides the thrill of the chase for the lowest pricei. Belk, JC Penney, Kohl’s are all H/L stores that offer sales and couponsii. Almost like a game: gives customer satisfaction of getting a good dealiii. JC Penney was H/L: hired Ron Johnson (Apple store designer) as CEO1. Decided to change pricing strategy to EDLP—lost BILLIONS2. Customers had no more thrill of the chase3. Slowly gained climbed back with their old CEO4. Big pricing strategy failureiv. Family Dollar swapped from EDLP to H/L and this was also not successful; customers didn’t like not always getting the lowest price IV. Price-Quality Relationshipa. Most inexperienced consumers use price as an indicator of qualityb. Price becomes crucial when consumers have little knowledge about certain products/brandsc. With electronics, inexperienced customers usually buy middleman (Three options, think the cheapest isn’t good enough quality; think highest is too expensive)d. Pricing is often psychological with the consumere. Warby Parker had a pricing expert tell them not to price their glasses at $45 because people wouldn’t think they were good enough quality; stayed at their price of $95V. New Product Pricing Strategiesa. When product enters the market, it faces the debate of having a high initial or low initial price.b. Market penetration: such a low price that it discourages competitors from copying (low initial)c. Price skimming: earn a better image—sets a large margin from competition (highinitial); example is new electronicsVI. Price Tactics Aimed at Consumersa. Companies try these to get more of a profitb. Mark Downs: used to clear out past season’s stuff; often gets customers’ attention and excitementi. The Science of Sales: Mark Ellwood says that a sale should be more normal than full price”ii. Sale triggers dopamine release; Cyber Monday was the biggest sale day ofthe year last yearc. Quantity Discounts: “Buy two, get one free”d. Seasonal Discounts: encourage year round use in slow season; often used with hotels and airfaree. Rebates: send in form to get discount later; company hopes that the customer will forget to mail it inf. Price Bundling: buy package and it’s cheaperi. SUP store with books and online codeii. Furniture sets, fast food combinations, vacationsiii. Coke originated the coupong. Leader Pricing: go into the store with a discount in mind, buy other things while in therei. Loss/leader: movie theaterii. Pop: concession stand makes more money than the movie1. Theaters used to not have food—then came the recession2. Movies targeting children and suspenseful dramas sold the most popcorniii. $5 foot long deal at Subway—people usually buy the chips and drink along with the discountiv. Boosts store traffich. Limited Time offers overlapi. $3.99 lobster tail at Golden Corral—bumper crop of lobster that yearii. 200,000 pounds of tail: bought them for 3.79; very successful because people would buy other things when they came to eat at the restaurantVII. Business to Business Pricing Tactics and Discountsa. Seasonal: by next season’s earlyb. Cash: pay early, get a discount (think accounting!)c. Quantity: buying in bulk is cheaperd. Uniform delivery vs. Zone Pricingi. Uniform delivery: same delivery price no matter how farii. Zone pricing: cheaper the closer you aree. Vendor (trade promotion): manufacturer gives retailer a discount for marketing M&Ms/Oreos/crackers/etc.i. Help retailers give customers discounts—most of the time paid for by the manufacturer when see a discount in the storeii. Track promotions with software to see how well they’ve done in storeVIII. Legal Aspects and Ethics of Pricinga. Deceptive or Illegal Price Advertising—advertising needs to be correct (no fake sales)i. Snuggie pay $8 million fine for not giving a true BOGO free saleb. Predatory Pricing: entering a market with low prices just to put someone out of business (prices so low that they themselves are losing money)c. Discrimination: charge different prices for the same productd. Price fixing: companies that sell same item can’t meet together