chapter 7 pricing strategies. ‘value’ may be one of the most overused and misused terms in...
TRANSCRIPT
Chapter 7
Pricing strategies
‘Value’ may be one of the most overused and misused terms in marketing and pricing today. ‘Value pricing’ is too often misused as a synonym for low price or bundled price. The real essence of value revolves around the tradeoff between the benefits a customer receives from a product and the price he or she pays for it.
R. Leszinki & M.V. Marn, ‘Setting value, not price’,The McKinsey Quarterly, 1997 No. 1, pp. 99–100.
ObjectivesAt the end of this chapter, you will be able to develop realistic pricing strategies taking into account:
• external considerations• internal factors• legal considerations.
The strategic marketing planning process
Marketing strategies – pricing strategiesDetermination of pricing strategies, taking into account the external environment, internal factors and legal considerations.
Situationanalysis
Situationanalysis
Problems &opportunities
Problems &opportunities
Marketingobjectives
Marketingobjectives
Marketingstrategies
Marketingstrategies
BudgetBudget ImplementationImplementation
Evaluation & control
Evaluation & control
A holistic process
Marketing objectives
Corporate objectives• Financial objectives
Marketing objectives• Performance
objectives
Marketing strategies
Higher-level strategies• Business position • Product-market strategies
Marketing mix strategies• Target markets • Consumer positioning • Product strategies • Pricing strategies • Distribution strategies • IMC strategies + additional 3Ps for service providers• People, process management and physical asset strategies
Developing pricing strategies (1)
Determining an effective pricing strategy involves three sets of considerations:• the external environment• internal factors• legal considerations.
Developing pricing strategies (2)
External environmentExternal environment
Internal factorsInternal factors
Legal considerationsLegal considerations
Market factors• Customer demand
- price elasticity- price threshold
• Competitive influences- price/quality position- price lining
Developing pricing strategies (3)
External environmentExternal environment
Internal factorsInternal factors
Legal considerationsLegal considerations
Business positioning• Strategic position• Profit/ROI objectives• Internal capabilities (cost leadership)For new products• Skimming v. penetrationFor all products• Ensure pricing strategy is consistent with all other marketing mix strategies.
Developing pricing strategies (4)
External environmentExternal environment
Internal factorsInternal factors
Legal considerationsLegal considerations
Compliance with provisions in TPA and PSA particularlyTPA s.45 Anti-competitiveagreements, s.46 Misuse ofmarket power and s.48Resale price maintenance.
Decision-making aids
As an aid for analysis and decision making, draw on tools such as:
• the PLC and innovator theory• product portfolio models• models of competitive advantage• price elasticity and demand curve
(Figure 7.1)• the price/quality positioning map (Figure
5.2).
Demand curve: Example
$3000
$2800
$2600
$2400
$2200
$2000 500 2000 4000 6000
Units
Demand for a hypothetical notebook computer at various price points
A price/quality positioning map
High
High
Low
Low
Productquality
Price
XX
XX
XXXX
XXX
XX
Responding to a competitive pricing challenge
1 Determine the motives for the price attacker and the capabilities of the competing organisation.
2 Attempt to achieve superior performance (cost leadership or differentiation) based on customer needs.
3 Show the competitor that the battle will not be easy.