Good Value at Spirit Airlines

Good Value at Spirit Airlines
Principles of Marketing Seventeenth Edition Chapter 10 Pricing: Understanding and Capturing Customer Value Copyright © 2018, 2016, 2014 Pearson Education, Inc. All Rights Reserved. Copyright © 2018, 2016, 2014 Pearson Education, Inc. All Rights Reserved. Learning Objectives 10 -1 Answer the question “What is a price?” and discuss the importance of pricing in today’s fast -changing environment . 10 -2 Identify the three major pricing strategies and discuss the importance of understanding customer -value perceptions, company costs, and competitor strategies when setting prices. 10 -3 Identify and define the other important external and internal factors affecting a firm’s pricing decisions . Copyright © 2018, 2016, 2014 Pearson Education, Inc. All Rights Reserved. Learning Objective 1 Answer the question “What is a price?” and discuss the importance of pricing in today’s fast -changing environment. Copyright © 2018, 2016, 2014 Pearson Education, Inc. All Rights Reserved. What Is a Price? Price is the amount of money charged for a product or service, or the sum of all the values that customers exchange for the benefits of having or using the product or service . Copyright © 2018, 2016, 2014 Pearson Education, Inc. All Rights Reserved. Learning Objective 2 Identify the three major pricing strategies and discuss the importance of understanding customer -value perceptions , company costs, and competitor strategies when setting prices. Copyright © 2018, 2016, 2014 Pearson Education, Inc. All Rights Reserved. Major Pricing Strategies Copyright © 2018, 2016, 2014 Pearson Education, Inc. All Rights Reserved. Major Pricing Strategies Customer Value – Based Pricing Value -based pricing uses the buyers’ perceptions of value rather than the seller’s cost. • Value -based pricing is customer driven. • Cost -based pricing is product driven. • Price is set to match perceived value . Copyright © 2018, 2016, 2014 Pearson Education, Inc. All Rights Reserved. Major Pricing Strategies Copyright © 2018, 2016, 2014 Pearson Education, Inc. All Rights Reserved. Major Pricing Strategies Customer Value – Based Pricing Good -value pricing is offering just the right combination of quality and good service at a fair price. Copyright © 2018, 2016, 2014 Pearson Education, Inc. All Rights Reserved. Major Pricing Strategies Customer Value – Based Pricing Everyday low pricing (EDLP) involves charging a constant everyday low price with few or no temporary price discounts. Copyright © 2018, 2016, 2014 Pearson Education, Inc. All Rights Reserved. Major Pricing Strategies Customer Value – Based Pricing High -low pricing involves charging higher prices on an everyday basis but running frequent promotions to lower prices temporarily on selected items. Copyright © 2018, 2016, 2014 Pearson Education, Inc. All Rights Reserved. Major Pricing Strategies Customer Value – Based Pricing Value -added pricing attaches value -added features and services to differentiate the companies offers and thus their higher prices. Copyright © 2018, 2016, 2014 Pearson Education, Inc. All Rights Reserved. Major Pricing Strategies Cost – Based Pricing Cost -based pricing sets prices based on the costs for producing, distributing, and selling the product plus a fair rate of return for effort and risk. Copyright © 2018, 2016, 2014 Pearson Education, Inc. All Rights Reserved. Major Pricing Strategies Cost – Based Pricing Fixed costs are the costs that do not vary with production or sales level. • Rent • Heat • Interest • Executive salaries Copyright © 2018, 2016, 2014 Pearson Education, Inc. All Rights Reserved. Major Pricing Strategies Cost – Based Pricing Variable costs vary directly with the level of production . • Raw materials • Packaging Copyright © 2018, 2016, 2014 Pearson Education, Inc. All Rights Reserved. Major Pricing Strategies Cost – Based Pricing Total costs are the sum of the fixed and variable costs for any given level of production. Copyright © 2018, 2016, 2014 Pearson Education, Inc. All Rights Reserved. Major Pricing Strategies Copyright © 2018, 2016, 2014 Pearson Education, Inc. All Rights Reserved. Major Pricing Strategies Copyright © 2018, 2016, 2014 Pearson Education, Inc. All Rights Reserved. Major Pricing Strategies Cost – Based Pricing Cost -plus pricing adds a standard markup to the cost of the product . • Benefits  Sellers are certain about costs.  Price competition is minimized.  Buyers feel it is fair. • Disadvantages  Ignores demand and competitor prices Copyright © 2018, 2016, 2014 Pearson Education, Inc. All Rights Reserved. Major Pricing Strategies Cost – Based Pricing Break -even pricing (target return pricing) is setting price to break even on costs or to make a target return . Figure 10.5 Break -Even Chart for Determining Target Return Price and Break -Even Volume. Copyright © 2018, 2016, 2014 Pearson Education, Inc. All Rights Reserved. Major Pricing Strategies Copyright © 2018, 2016, 2014 Pearson Education, Inc. All Rights Reserved. Major Pricing Strategies Competition – Based Pricing Competition -based pricing is setting prices based on competitors’ strategies, costs, prices, and market offerings. Copyright © 2018, 2016, 2014 Pearson Education, Inc. All Rights Reserved. Learning Objective 3 Identify and define the other important external and internal factors affecting a firm’s pricing decisions . Copyright © 2018, 2016, 2014 Pearson Education, Inc. All Rights Reserved. Other Considerations Affecting Price Decisions Overall Marketing Strategy, Objectives, and Mix Target costing starts with an ideal selling price based on consumer value considerations and then targets costs that will ensure that the price is met . Copyright © 2018, 2016, 2014 Pearson Education, Inc. All Rights Reserved. Other Considerations Affecting Price Decisions Organizational Considerations • Who should set prices ? • Who can influence prices? Copyright © 2018, 2016, 2014 Pearson Education, Inc. All Rights Reserved. Other Considerations Affecting Price Decisions The Market and Demand Before setting prices, the marketer must understand the relationship between price and demand for its products. Copyright © 2018, 2016, 2014 Pearson Education, Inc. All Rights Reserved. Other Considerations Affecting Price Decisions The Market and Demand Pricing In Different Types of Markets Pure competition Monopolistic competition Oligopolistic competition Pure monopoly Copyright © 2018, 2016, 2014 Pearson Education, Inc. All Rights Reserved. Other Considerations Affecting Price Decisions The Market and Demand Analyzing the Price – Demand Relationship The demand curve shows the number of units the market will buy in a given period at different prices • Demand and price are inversely related. • Higher price = lower demand Copyright © 2018, 2016, 2014 Pearson Education, Inc. All Rights Reserved. Other Considerations Affecting Price Decisions The Market and Demand Price Elasticity of Demand Price elasticity is a measure of the sensitivity of demand to changes in price. Inelastic demand is when demand hardly changes with a small change in price. Elastic demand is when demand changes greatly with a small change in price. Copyright © 2018, 2016, 2014 Pearson Education, Inc. All Rights Reserved. Other Considerations Affecting Price Decisions The Economy and Other External Factors Economic conditions Reseller’s response to price Government Social concerns Copyright © 2018, 2016, 2014 Pearson Education, Inc. All Rights Reserved. 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Good Value at Spirit Airlines
Principles of Marketing Seventeenth Edition Chapter 11 Pricing Strategies: Additional Considerations Copyright © 2018, 2016, 2014 Pearson Education, Inc. All Rights Reserved. Copyright © 2018, 2016, 2014 Pearson Education, Inc. All Rights Reserved. Learning Objectives 11 -1 Describe the major strategies for pricing new products. 11 -2 Explain how companies find a set of prices that maximizes the profits from the total product mix. 11 -3 Discuss how companies adjust their prices to take into account different types of customers and situations . 11 -4 Discuss the key issues related to initiating and responding to price changes . 11 -5 Overview the social and legal issues that affect pricing decisions. Copyright © 2018, 2016, 2014 Pearson Education, Inc. All Rights Reserved. Learning Objective 1 Describe the major strategies for pricing new products. Copyright © 2018, 2016, 2014 Pearson Education, Inc. All Rights Reserved. New Pricing Strategies Market -skimming pricing strategy sets high initial prices to “skim” revenue layers from the market. • Product quality and image must support the price. • Buyers must want the product at the price. Copyright © 2018, 2016, 2014 Pearson Education, Inc. All Rights Reserved. New Pricing Strategies Market -penetration pricing involves setting a low price for a new product in order to attract a large number of buyers and a large market share. Copyright © 2018, 2016, 2014 Pearson Education, Inc. All Rights Reserved. Learning Objective 2 Explain how companies find a set of prices that maximizes the profits from the total product mix. Copyright © 2018, 2016, 2014 Pearson Education, Inc. All Rights Reserved. Product Mix Pricing Strategies Product line pricing Optional product pricing Captive product pricing By – product pricing Product bundle pricing Copyright © 2018, 2016, 2014 Pearson Education, Inc. All Rights Reserved. Product Mix Pricing Strategies Product Line and Optional Product Pricing Product line pricing takes into account the cost differences between products in the line, customer evaluations of their features, and competitors’ prices. Optional product pricing takes into account optional or accessory products along with the main product. Copyright © 2018, 2016, 2014 Pearson Education, Inc. All Rights Reserved. Product Mix Pricing Strategies Captive product pricing sets prices of products that must be used along with the main product. Copyright © 2018, 2016, 2014 Pearson Education, Inc. All Rights Reserved. Product Mix Pricing Strategies Product Line and Optional Product Pricing By -product pricing sets a price for by -products in order to make the main product’s price more competitive. Product bundle pricing combines several products at a reduced price. Copyright © 2018, 2016, 2014 Pearson Education, Inc. All Rights Reserved. Learning Objective 3 Discuss how companies adjust their prices to take into account different types of customers and situations. Copyright © 2018, 2016, 2014 Pearson Education, Inc. All Rights Reserved. Price Adjustment Strategies Copyright © 2018, 2016, 2014 Pearson Education, Inc. All Rights Reserved. Copyright © 2018, 2016, 2014 Pearson Education, Inc. All Rights Reserved. Price Adjustment Strategies Discount and allowance pricing reduces prices to reward customer responses such as making volume purchases, paying early, or promoting the product. Copyright © 2018, 2016, 2014 Pearson Education, Inc. All Rights Reserved. Price Adjustment Strategies Segmented pricing involves selling a product or service at two or more prices, where the difference in prices is not based on differences in costs. Copyright © 2018, 2016, 2014 Pearson Education, Inc. All Rights Reserved. Price Adjustment Strategies Segmented Pricing • Customer -segment pricing • Product -form pricing • Location -based pricing • Time -based pricing Copyright © 2018, 2016, 2014 Pearson Education, Inc. All Rights Reserved. Price Adjustment Strategies Segmented Pricing For segmented pricing to be effective: • Market must be segmentable • Segments must show different degrees of demand • Costs of segmenting cannot exceed the extra revenue • Must be legal Copyright © 2018, 2016, 2014 Pearson Education, Inc. All Rights Reserved. Price Adjustment Strategies Psychological Pricing Psychological pricing considers the psychology of prices and not simply the economics; the price is used to say something about the product. Reference prices are prices that buyers carry in their minds and refer to when they look at a given product. Copyright © 2018, 2016, 2014 Pearson Education, Inc. All Rights Reserved. Price Adjustment Strategies Promotional Pricing Promotional pricing is characterized by temporarily pricing products below the list price, and sometimes even below cost, to increase short -run sales. Examples include: • s pecial -event pricing • limited -time offers • c ash rebates • low -interest financing, extended warranties, or free maintenance Copyright © 2018, 2016, 2014 Pearson Education, Inc. All Rights Reserved. Price Adjustment Strategies Geographical pricing is used for customers in different parts of the country or the world. • FOB -origin pricing • Uniform -delivered pricing • Zone pricing • Basing -point pricing • Freight -absorption pricing Copyright © 2018, 2016, 2014 Pearson Education, Inc. All Rights Reserved. Price Adjustment Strategies Geographical Pricing FOB -origin (free on board) pricing is a geographical pricing strategy in which goods are placed free on board a carrier; the customer pays the freight from the factory to the destination. Uniform -delivered pricing is a geographical pricing strategy in which the company charges the same price plus freight to all customers, regardless of their location. Copyright © 2018, 2016, 2014 Pearson Education, Inc. All Rights Reserved. Price Adjustment Strategies Geographical Pricing Zone pricing is a strategy in which the company sets up two or more zones where customers within a given zone pay the same price. Basing -point pricing means that a seller selects a given city as a “basing point” and charges all customers the freight cost from that city to the customer. Copyright © 2018, 2016, 2014 Pearson Education, Inc. All Rights Reserved. Price Adjustment Strategies Geographical Pricing Freight -absorption pricing is a strategy in which the seller absorbs all or part of the freight charges in order to get the desired business . Copyright © 2018, 2016, 2014 Pearson Education, Inc. All Rights Reserved. Price Adjustment Strategies Dynamic pricing involves adjusting prices continually to meet the characteristics and needs of individual customers and situations. Copyright © 2018, 2016, 2014 Pearson Education, Inc. All Rights Reserved. Price Adjustment Strategies International pricing involves adjusting prices continually to meet the characteristics and needs of individual customers and situations. Copyright © 2018, 2016, 2014 Pearson Education, Inc. All Rights Reserved. Learning Objective 4 Discuss the key issues related to initiating and responding to price changes. Copyright © 2018, 2016, 2014 Pearson Education, Inc. All Rights Reserved. Price Changes Initiating Price Changes Price cuts occur due to: • Excess capacity • Increased market share Price increases occur due to: • Cost inflation • Increased demand • Lack of supply Copyright © 2018, 2016, 2014 Pearson Education, Inc. All Rights Reserved. Price Changes Buyer Reactions to Pricing Changes Price increases • Product is “hot ” • Company greed Price cuts • New models will be available • Models are not selling well • Quality issues Copyright © 2018, 2016, 2014 Pearson Education, Inc. All Rights Reserved. Price Changes Competitor Reactions to Pricing Changes • Why did the competitor change the price? • Is the price cut permanent or temporary? • Is the company trying to grab market share? • Is the company doing poorly and trying to increase sales? • Is it a signal to decrease industry prices to stimulate demand ? Copyright © 2018, 2016, 2014 Pearson Education, Inc. All Rights Reserved. Price Changes Copyright © 2018, 2016, 2014 Pearson Education, Inc. All Rights Reserved. Price Changes Responding to Pricing Changes Effective Action Responses • Reduce price to match competition • Maintain price but raise the perceived value through communications • Improve quality and increase price • Launch a lower -price “fighting” brand Copyright © 2018, 2016, 2014 Pearson Education, Inc. All Rights Reserved. Learning Objective 5 Overview the social and legal issues that affect pricing decisions. Copyright © 2018, 2016, 2014 Pearson Education, Inc. All Rights Reserved. Public Policy and Pricing Copyright © 2018, 2016, 2014 Pearson Education, Inc. All Rights Reserved. Public Policy and Pricing Pricing Within Channel Levels Price fixing legislation requires sellers to set prices without talking to competitors. Predatory pricing legislation prohibits selling below cost with the intention of punishing a competitor or gaining higher long -term profits by putting competitors out of business. Copyright © 2018, 2016, 2014 Pearson Education, Inc. All Rights Reserved. Public Policy and Pricing Pricing Across Channel Levels Robinson -Patman Act prevents unfair price discrimination by ensuring that the seller offer the same price terms to customers at a given level of trade. Price discrimination is allowed if the seller: • can prove that costs differ when selling to different retailers • manufactures different qualities of the same product for different retailers Copyright © 2018, 2016, 2014 Pearson Education, Inc. All Rights Reserved. Public Policy and Pricing Pricing Across Channel Levels Retail (or resale) price maintenance is when a manufacturer requires a dealer to charge a specific retail price for its product, which is prohibited by law. Copyright © 2018, 2016, 2014 Pearson Education, Inc. All Rights Reserved. Public Policy and Pricing Pricing Across Channel Levels Deceptive pricing occurs when a seller states prices or price savings that mislead consumers or are not actually available to consumers. • Bogus reference or comparison prices • Scanner fraud and price confusion Copyright © 2018, 2016, 2014 Pearson Education, Inc. All Rights Reserved. Copyright