chapter 15. managing the industrial pricing function ba 303 - b2b marketing lindell phillip chew
TRANSCRIPT
Chapter 15. Managing the Industrial Pricing Function
BA 303 - B2B Marketing
Lindell Phillip Chew
The Meaning of Price in Business Markets
A. Product equals attribute bundles1. Product specific2. Company‑related3. Salesperson‑related
The buyer sees the cost of a business product as much more than the seller's price.
Benefits of purchasing from given supplier
• I. Product involves more than the physical product
The product possesses……..
• a. Financial benefits
• b. Functional benefits
• c. Operational benefits
• d. Personal benefits
Costs associated with a supplier
• Tangible‑price, transportation, installation, inventory
• 2. Intangible‑risk of product failure and/or service failure
• 3. Formal vendor evaluation programs highlight the importance of total cost
Costs associated with a supplier
• The supplier with the lowest initial price may be the highest cost alternative in the long runLow‑price bidders frequently are not awarded an account
Value‑based strategies 1. Provide lower cost‑in‑use solutions 2. Focused on long‑term relationships
The Industrial Pricing Process
• Price objectives• I. Congruent with marketing corporate goals• 2. Collateral goals• a. Target returns on investment• b. Market share• c. Competitive• 3. Far‑reaching effects on market strategy and
firm goals
Demand determinants
• Assess the value provided to customersValue depends on the attributes of the product offering
Evaluate the relative importance of the attributes to each market segmentPrice differentials vis‑a‑vis competitors can be determined by comparing the total value buyers associate with attributes provided by each competitor
Demand determinants
• Cost/benefit strategy implications• Promotion used to align customer perceptions of
value with actual product performance
• Use promotion to change customer value perceptions for a particular attribute ‑
Improve performance on selected attributes that are highly valued by customers
Elasticity varies by market segment
• Elasticity measures customer sensitivity to price changes
Influenced by a host of factors End use of the product affects elasticity Demand is inelastic when the product has a small
role in the final product's total cost Elastic when the component is a larger proportion of
the final product's costDue to derived demand, analysis of final consumer
markets is often required
Methods of estimating demand (expectations)
• Test marketing
Suitable if the product is sold to a large
number of users and short usage cycles
Not applicable to capital equipment
ALSO…..
Surveys
Managerial judgment
Cost determinantsTarget costs
• Target costsDesign‑to‑cost philosophy
Crate the product to meet a prescribed level of cost
Establish allowable costs as device to meet target costs
Target costs are a profit‑management tool
COST VOLUME PROFIT ANALYSISClassifying costs
• PurposeDetermine whether fixed or variable costsLink costs to activity causing the costTypes of costs
• 1. Direct‑directly traceable to a unit of activity• 2. Indirect‑traceable, but indirectly assigned• 3. General‑cannot be objectively assigned
• Remember your contribution margin
Experience effects
1. Total costs of a product decline over time as volume increases
2. Broader range of costs than learning curve‑ distribution, marketing, administration, and
production3. As accumulated volume expands, unit cost
falls by 20 to 30 percent4. Why costs decline
I.earning by doing (experience effect) Economies of scale
Pricing flexibility depends on the degree to which the productdifferentiates from competitive
products• Competition Strong rivalries in
rapidly changing markets• b. Volatility of pricing structure• 3. Gauging competitive response• a Evaluate cost structures of direct
competitors• b. Analysis of competitive marketing
strategy
Pricing Across the Product Life Cycle Pricing new products
Skimming vs. Penetration• Skimming• 1. Reach segments impervious to high initial • prices• 2. Capture early profits• 3. Reduce price as competition enters
• Penetration• 1. Used when demand is elastic, strong threat of• competition, and opportunities for cost reductions• as volume expands• 2. Advantages associated with gaining large market
shares early
Product line considerations
• Product line considerations
• a. Demand and costs of items in a product line are interrelated
• b. Try to price all items in the line within the acceptable price range as perceived by buyer
Tactical PricingConsidering the unique customer
and order‑specific costs of eachtransaction• Win/loss
• 1. Insight into how customers define value• 2. What factors prompted getting or losing the
business• D. Legal considerations• 1. Price differences must be based on cost
differences or to "meet competition"• 2. Marketer needs to develop procedures for
documenting price differentials
Competitive BiddingThe buyer's side
Most government buying done by bidding• Closed bidding
• 1. Formal process, bids opened and reviewed at a prescribed time
• 2. Low bidder not always selected
• Open bidding• 1. Informal, involves negotiations• 2. Used when specific requirements are hard to
define
INTERNATIONAL PRICING INVOLVES OFFSETS
• OFFSETS- 40% of world trade- ( ham for planes)• COUNTER PURCHASE• COMPENSATION• BARTER• SWITCH• Hear about the worlds largest barter???????
PRICING TERMS OF SALE
DISCOUNTS & DATINGSADVISE ANGIE
3/20 net 60 eom November 21, 2002Your money is earning 21% annually
Invoice amount $100 million
When should you pay, how much & why?
PRICING A BUSINESS IN PAGEDALE
• We will look at the financial statements of a manufacturing business and evaluate the asking price and make an offer
An expanded look at pricing
