class 25 and 26 slides
TRANSCRIPT
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Marketing Mix - Pricing Strategy
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Session Outlines
Pricing Decisions Strategic Pricing Decisions Profit Equation Price as an Indicator of Quality / Value Setting the Price The six steps Four Main Pricing Strategies Price - Quality Strategies Pricing Methods Auction Pricing
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PRICING DECISIONS Pricing is an art, a game played for high stakes; for
marketing strategists, it is the moment of truth. All ofmarketing comes to focus in the pricing decision.
Pricing decisions determine the types of customers and competitors afirm attracts
A single pricing error can effectively nullify all other marketing mix
activities
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Strategic Pricing Decisions
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Adjust price to meet variations in demandand cost across segments, channels etc
Set strategic pricing objective
Estimate demand, price elasticityof demand and perceived value
Determine costs and their relationship to volume
Examine competitors prices and costs
Select a method for calculating price
Set a price level
Influences/Constraints:
InternalMarketing ObjectivesPositioningMarketing StrategiesCosts
Strengths/WeaknessesCompany characteristics
ExternalConsumer attitudesConsumer demandCompetitionResellersCultureEconomyLegislation
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Marketing Mix
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Product Price
PromotionPlace
RevenueProducer
Cost
Cost
Cost
PROFIT EQUATION Price affects the quantity sold and hence profit because it directly
affects both revenues and costs:
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Profit = TotalRevenueTotalCosts
TotalRevenue
UnitVariableCosts
UnitPrice
FixedCosts +
QuantitySold Profit ( )[ ]= ( ) QuantitySold
TotalCosts
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PricePrice
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Money Charged for a Product or ServiceMoney Charged for a Product or Service
Generates RevenueGenerates Revenue
Easy to ChangeEasy to Change
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Many NamesMany Names
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Why Price?
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PRICING CONSIDERATIONSPrice as an Indicator of Quality / Value
For some offerings, price influences consumers perception ofquality and ultimately value
Price affects consumer perceptions of prestige: As the pricefor an item increases, the demand for it rises
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Setting the Price
The six steps in the process
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Select Final Price
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Price Method
Competitor Analysis
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3
4
5
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Estimate Costs
Determine DemandPricing Objective
Pricing Objectives
QuantitativeTarget marginTarget ROI
Target cash flowTarget revenueTarget volumeTarget share
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QualitativeMarket imagePerceived fairness
Competitive parityCompetitive edgeEntry deterrenceSurvival
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Four Main Pricing Strategies
A
A
B
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Market SkimmingMarket Skimming
Applies to new, distinctiveApplies to new, distinctiveproducts, early in the PLCproducts, early in the PLC
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Two Pricing MistakesTwo Pricing Mistakes
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Reducing Price Too SoonReducing Price Too Soon
Pricing Based on Costinstead of Customer ValuePricing Based on Costinstead of Customer Value
Price Wars
Involves successive price cutting by competitors toincrease or maintain their unit sales or market share If competitors match the lower price, market share, sales, and profit gains
could be lost
The overall price level resulting from the lower price benefits none of thecompetitors
Coke vs. Pepsi price war in Karachi Marketers should consider price cutting only when one or more
conditions exist: The firm has a cost or technological advantage over its competitors The price cut is confined to specific products or customers and not across-
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INDUSTRY CHARACTERISTICS AND
THE RISK OF PRICE WARS
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Higher Lower
IndustryCharacteristics
Offering type
Market growth rate
Price visibility to competitors
Buyer price sensitivity
Overall industry cost trend
Industry capacity utilization
Number of competitors
Undifferentiated
Stable/Decreasing
High
High
Declining
Low
Many
Differentiated
Increasing
Low
Low
Stable
High
Few
Risk Level
Pricing Methods
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15% 20%
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Pricing Methods
( . . )
. .
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Pricing Methods
$$$ $ $ $$ 22
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Pricing Cues / Psychological pricing ,
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. B
.
00 ,
99 .
. A , 8%.
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Product Mix Pricing
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. . / / /
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Product Mix Pricing
. .
/
. . A
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Price Adjustments
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Auction Pricing
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English auction(ascending bids)
Dutch auction(descending bids)
Sealed-bid auction
Session Take Away
A
:
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