chapter twelve pricing strategies. chapter objectives define pricing and examine the external and...
Post on 21-Dec-2015
232 views
TRANSCRIPT
Chapter TwelveChapter Twelve
QuickTime™ and aDV/DVCPRO - NTSC decompressor
are needed to see this picture.
Pricing StrategiesPricing Strategies
Chapter ObjectivesChapter Objectives
Define pricing and examine the external Define pricing and examine the external and internal influences on pricing and internal influences on pricing decisionsdecisions
Examine the different price objectivesExamine the different price objectives Address the various pricing strategiesAddress the various pricing strategies Address strategic marketing Address strategic marketing
applications in relation to pricingapplications in relation to pricing Address strategies that companies to Address strategies that companies to
use change pricesuse change prices
Influences on Pricing Influences on Pricing DecisionsDecisions
External influencesExternal influences Consumer influencesConsumer influences Economic influencesEconomic influences Intermediaries’ Intermediaries’
influencesinfluences Competitive influencesCompetitive influences Government influenceGovernment influence
Internal influencesInternal influences
External Influences on External Influences on
PricePrice Consumer InfluenceConsumer InfluenceLaw of Demand: Consumers purchase more products Law of Demand: Consumers purchase more products at lower prices than at higher prices. Companies can at lower prices than at higher prices. Companies can influence demand, e.g., by promoting. The price is influence demand, e.g., by promoting. The price is equal to a consumers willingness to pay.equal to a consumers willingness to pay. (WTP) (WTP)
Price Price
Quantity Demanded
Quantity Demanded
D'DWhen
increasing promotion
External Influences on External Influences on PricePrice::
Economic Influences on Costs and Economic Influences on Costs and
PricePrice Economic Economic Factors:Factors:
- Inflation Inflation - Recession Recession - Interest Interest
RatesRates- TaxesTaxes
influence Cost of producing a product
Change Pricing decisions
External Influences on External Influences on PricePrice: :
Intermediaries’ Influences on Intermediaries’ Influences on PricePrice
Intermediaries are trying to have some Intermediaries are trying to have some level of control over their own mark-up. level of control over their own mark-up. The following are ways to accomplish it:The following are ways to accomplish it: Just-in-Time delivery methodsJust-in-Time delivery methods Quick Response Inventory SystemsQuick Response Inventory Systems Electronic Data InterchangeElectronic Data Interchange
Goal is to lower inventory Goal is to lower inventory carrying costs and accelerate the carrying costs and accelerate the flow of products.flow of products.
External Influences on External Influences on Price:Price:
Competitive Influences on Competitive Influences on PricePrice Companies need to consider the competitive Companies need to consider the competitive
environment and the firm’s position relative to environment and the firm’s position relative to competitors when making pricing decisions.competitors when making pricing decisions.
A company can only control the priceA company can only control the price
at the beginning of the product life at the beginning of the product life cycle, or when it is the market leader.cycle, or when it is the market leader.
During the maturity stage companies normally During the maturity stage companies normally start competing on price and profits go down. start competing on price and profits go down.
External Influences on External Influences on Price: Price:
Government’s Influence on Government’s Influence on PricePrice
The government has enacted legislation to The government has enacted legislation to protect competitors, channel members, and protect competitors, channel members, and consumers from unfair pricing strategiesconsumers from unfair pricing strategies..
PoliciesPoliciesPrice discriminationPrice discrimination Predatory pricingPredatory pricing
Price fixingPrice fixing Bait-and-SwitchBait-and-Switch
Resale price maintenanceResale price maintenance etc.etc.
Internal Influences on Internal Influences on PricePrice
Depending on the size, the organizational Depending on the size, the organizational structure, and the industry focus, either structure, and the industry focus, either the company owner, the brand managers, the company owner, the brand managers, or a board of executives make the pricing or a board of executives make the pricing decisions.decisions.
Fixed Costs,Variable Costs:Fixed Costs,Variable Costs: Total Costs = Fixed + Variable Total Costs = Fixed + Variable
CostsCosts(At a particular level of production) (At a particular level of production)
Setting Pricing ObjectivesSetting Pricing Objectives
Pricing objectives have to be set in Pricing objectives have to be set in line with company goals.line with company goals.
Profit-based pricingProfit-based pricing
Sales-based pricingSales-based pricing
Status Quo pricing*Status Quo pricing*
Others* e.g., survival, cash flow, social, Others* e.g., survival, cash flow, social, imageimage
Pricing StrategiesPricing Strategies
Cost-based pricingCost-based pricing Demand-based pricingDemand-based pricing Competition-based pricingCompetition-based pricing Combination pricingCombination pricing
QuickTime™ and aDV/DVCPRO - NTSC decompressor
are needed to see this picture.
Cost-plus pricingCost-plus pricing Markup pricingMarkup pricing Breakeven Breakeven pricingpricing Target profit Target profit pricingpricing
Cost-Based PricingCost-Based Pricing
Demand-Based Pricing*Demand-Based Pricing*
Demand-based pricing:Demand-based pricing: Considers Considers customer’s perceptions of value, rather customer’s perceptions of value, rather than the seller’s cost, as the fundamental than the seller’s cost, as the fundamental component of the pricing decision component of the pricing decision
a.k.a. Psychological pricinga.k.a. Psychological pricing Reference priceReference price Prestige pricingPrestige pricing Odd-Even pricingOdd-Even pricing
“What the market will bear”
Competition-Based Competition-Based
PricingPricing Price can be above, below, Price can be above, below,
or equal to competition.or equal to competition. Best for brands in similar Best for brands in similar
markets, similar demand markets, similar demand patterns, and similar costs.patterns, and similar costs.
Price leadership (oligopoly markets)Price leadership (oligopoly markets) Bid-pricing Bid-pricing
(note “Demand-Backward Pricing*”)(note “Demand-Backward Pricing*”)
Combination PricingCombination Pricing
Often used in practiceOften used in practice
Typical scenario:Typical scenario:-Cost-based often use to -Cost-based often use to establish price floorestablish price floor-Use demand and competition -Use demand and competition pricing strategies to estimate pricing strategies to estimate priceprice-Use markup to calculate actual -Use markup to calculate actual selling priceselling price
Strategic Marketing Strategic Marketing Applications*Applications*
Price variability and marketing Price variability and marketing strategystrategy
New product pricingNew product pricing Product and pricingProduct and pricing Promotion and pricingPromotion and pricing Place and pricingPlace and pricing
Price Variability and Price Variability and Marketing StrategyMarketing Strategy
Customary pricingCustomary pricing Flexible pricingFlexible pricing No-haggle pricing (Everyday low No-haggle pricing (Everyday low
prices*)prices*) Price discounting*Price discounting*
QuantityQuantity TradeTrade SeasonalSeasonal Promotional/AdvertisingPromotional/Advertising CashCash
Allowances* (e.g., Trade-in, Rebate)Allowances* (e.g., Trade-in, Rebate)
Initial Pricing StrategiesInitial Pricing Strategies Penetration Pricing: Initially price the Penetration Pricing: Initially price the
product below competition to quickly product below competition to quickly gain market sharegain market share
Skimming Pricing: Product priced Skimming Pricing: Product priced above competition (high perceived above competition (high perceived quality and high profit-margins)quality and high profit-margins)
Introductory Pricing*: VeryIntroductory Pricing*: Very short term short term deep price reduction to induce trialdeep price reduction to induce trial
Initial Price Setting*Initial Price Setting* List pricesList prices Keystone and variationsKeystone and variations
New Product PricingNew Product Pricing
The Product and PricingThe Product and Pricing
Product line pricingProduct line pricing Accessory pricingAccessory pricing Captive-product Captive-product
(Complementary*) (Complementary*) pricingpricing
BundlingBundling Transfer pricing*Transfer pricing*
Promotion and PricingPromotion and Pricing
Multiple-unit Multiple-unit pricingpricing
Promotional pricingPromotional pricing Loss-leader pricingLoss-leader pricing Comparison Comparison
pricing*pricing*
Place and Pricing Place and Pricing Distribution and PricingDistribution and Pricing
Geographic pricing*Geographic pricing* FOB OriginFOB Origin FOB Destination, i.e., Delivered FOB Destination, i.e., Delivered
PricingPricing Uniform (Single Zone)Uniform (Single Zone) Zone (Multiple Zone)Zone (Multiple Zone)