ba27 topic1a pricing overview part2 complete
TRANSCRIPT
-
8/3/2019 BA27 Topic1A Pricing Overview Part2 Complete
1/56
OVERVIEW: PRICING
STRATEGIES AND PROGRAMS
Topic 1
By: Mario C. Angeles UST Commerce and BA
-
8/3/2019 BA27 Topic1A Pricing Overview Part2 Complete
2/56
Topics for discussions
Definition
Pricing Terms
Setting the Price
Other Pricing Methods
Different Pricing Strategies
By: Mario C. Angeles UST Commerce and BA
-
8/3/2019 BA27 Topic1A Pricing Overview Part2 Complete
3/56
Questions of concerns
How do consumers process and evaluate
prices?
How should a company set prices initially
for products or services?
How should a company adapt prices to
meet varying circumstances and
opportunities?
When should a company initiate a price
change?
How should a company respond to a
competitors price challenge?
By: Mario C. Angeles UST Commerce and BA
-
8/3/2019 BA27 Topic1A Pricing Overview Part2 Complete
4/56
Pricing defined
Price is defined as an amount
charged by a company to a
buyer in exchange for goods
or services.
A company does not set a
single price for all its products,
but formulates a pricingstructure that covers different
items in its product line.
In devising a pricing structure,
a company is mindful of
specific internal and externalfactors affecting price.
Internal Factors Affecting the
Price
1. Marketing Objectives
2. Marketing-Mix Strategy3. Costs, and
4. Organizational
Considerations
External Factors Affecting the
Price
1. Market
2. Demand
3. Competition
4. General Conditions
Synonyms for Price
1. Rent
2. Tuition
3. Fee
4. Fare
5. Rate
6. Toll
7. Premium
8. Honorarium
9. Special assessment
10.Bribe11.Dues
12.Salary
13.Commission
14.Wage
15.Tax
Common Pricing Mistakes
1. Determine costs and take
traditional industry margins2. Failure to revise price to
capitalize on market changes
3. Setting price independently of
the rest of the marketing mix
4. Failure to vary price by
product item, market segment,distribution channels, and
purchase occasion
The role of technology in
pricing trend
Information technology makes
it easier for seller to use
software that monitors
customers movements over
the Web and allows them to
customize offers and prices.
New software applications are
also allowing buyers tocompare prices online!
Result: Arms race between
merchant technology and
consumer technology!
By: Mario C. Angeles UST Commerce and BA
-
8/3/2019 BA27 Topic1A Pricing Overview Part2 Complete
5/56
Pricing Terms How companies price
Small companies: Prices are
often set by the boss.
Big companies: Pricing is
handled by division and
product-line managers.
Consumer psychology and
pricing
But marketers recognize that
consumers often actively
process the following:
Many economists assume that
consumers are price takers
and accept prices at face
value or as given.
1. Price information
2. Interpreting prices in terms of
their knowledge from prior
purchasing experience3. Formal communications
4. Informal communications
5. POP or online resources.
Purchase decisions are based
on how consumers perceive
prices and what they consider
to be the current actual price
NOT the marketers stated
price.
Understanding how consumers
arrive at their perceptions of
prices is an important
marketing priority.
Consider the following key topics
on pricing:
1. Reference prices
2. Price-quality inferences
3. Price endings
4. Price cues
Reference Prices
1. Fair price (what the product
should cost)
2. Typical price3. Last price paid
4. Upper-bound price (what most
consumers would pay)
5. Lower-bound price (the least
consumers would pay)
6. Competitor prices
7. Expected future price
8. Usual discounted price
There are possible consumer
reference prices
When consumers evoke one or
more of these frames of
reference, their perceived price
can vary from the stated price.
Price-Quality Inferences
Many consumers use price as
an indicator of quality.
Image pricing is especially
effective with ego-sensitive
products.
A very expensive product may
cost 10% of the price..
But for a buyer, he/she will pay
the price to communicate their
high regard for the receiver
of the product.
Some brands adopt scarcity as
a means to signify quality and
justify premium pricing.
Price Cues
Consumer perceptions of
prices are also affected byalternative pricing strategies.
Many sellers believe that
prices should end in an odd
number.
Reason: Consumers tend to
process prices in a left-to-
right manner rather than by
rounding.
Reason: with 9 endings, they
convey the notion of a
discount or bargain.
Prices ending at 0 or 5 are
also common.
It is easier for consumers to
process and retrieve from
memory.
Sale sign next to prices have
been shown to spur demand,
but only if not overused.
Question: When do we use
price cues?
1. Customers purchase iteminfrequently
2. Customers are new
3. Product designs vary over
time
4. Prices vary seasonally
5. Quality or sizes vary acrossstores.
By: Mario C. Angeles UST Commerce and BA
-
8/3/2019 BA27 Topic1A Pricing Overview Part2 Complete
6/56
-
8/3/2019 BA27 Topic1A Pricing Overview Part2 Complete
7/56
Price Elasticity of Demand
Example 1. The price of Brand 1
detergent is expected to increase by 10%
by next month. If this happens, 15% of its
buyers are expected to shift to Brand 2, a
much cheaper brand. In this case,demand is elastic since the percentage
change in demand (15%) is greater than
the percentage change in price (10%).
By: Mario C. Angeles UST Commerce and BA
-
8/3/2019 BA27 Topic1A Pricing Overview Part2 Complete
8/56
Price Elasticity of Demand
Example 2. MHS is planning to lower its
tuition by 12%. If it does, it expects
enrollment to go up by 7%. Since the
percentage change in demand (7%) is
less than the percentage change inprice (12%), then demand is inelastic.
By: Mario C. Angeles UST Commerce and BA
-
8/3/2019 BA27 Topic1A Pricing Overview Part2 Complete
9/56
Price Elasticity of Demand
Example 3.Agua Pure is planning to
increase the price of its one-gallon purified
water from P10 to P12. if this happens, the
company estimates that demand will fall
from 100 gallons a day to 80 gallons aday. In this case, demand is unitary since
the percentage change in demand and
the percentage change in price are
equal at 20%.
Computing
Percentage Change
in Price and Demand
Percentage Change in Price New Value Base Value
Base Value= x 100%
Percentage Change in Demand =New Value Base Value
Base Valuex 100%
By: Mario C. Angeles UST Commerce and BA
-
8/3/2019 BA27 Topic1A Pricing Overview Part2 Complete
10/56
Effect of Demand Elasticity
on Pricing Decision
On Elastic Demand. Under elastic
demand, price plays a vital role in
consumers buying decision.
Here buyers are price-sensitive whichmeans that price is an important factor
consumers consider before buying the
product.
Again, sellers under this condition would
consider lowering their prices since thelower price will product more total
revenues for the company due to a higher
rate of increase in demand.
By: Mario C. Angeles UST Commerce and BA
-
8/3/2019 BA27 Topic1A Pricing Overview Part2 Complete
11/56
Effect of Demand Elasticity
on Pricing Decision
On Inelastic Demand. Under inelastic
demand, buyers are not as price-sensitive
as those in elastic demand.
Consumers look for other productattributes, besides price, in making their
purchase decision.
This demand elasticity may be found in
essential goods like rice, electricity, water,
and petroleum.
Lowering prices under this condition may
produce les impact on revenues.
By: Mario C. Angeles UST Commerce and BA
-
8/3/2019 BA27 Topic1A Pricing Overview Part2 Complete
12/56
Effect of Demand Elasticity
on Pricing Decision
On Unitary Demand. Under unitary
demand, the behavior of price and
demand is the same so that any
percentage change in price would result in
the same percentage change in thequantity of demand.
Thus, total revenues remain unchanged.
By: Mario C. Angeles UST Commerce and BA
-
8/3/2019 BA27 Topic1A Pricing Overview Part2 Complete
13/56
-
8/3/2019 BA27 Topic1A Pricing Overview Part2 Complete
14/56
Prelim Quiz 1 coverage ends here
-
8/3/2019 BA27 Topic1A Pricing Overview Part2 Complete
15/56
Other Pricing Approaches
1. New Product PricingStrategies
2. Cost-Based and Value-Based
pricing Strategies
3. Competition Based and
Product Mix Pricing
Strategies, and4. Psychological, Promotional,
and Geographical Pricing Objectives:
1. To understand the Product
Pricing Strategies2. To differentiate Cost-Based
from Value-Based pricing
Strategies
3. To explain Competition Based
and Product Mix Pricing
Strategies, and4. To discuss Psychological,
Promotional, and
Geographical Pricing
By: Mario C. Angeles UST Commerce and BA
-
8/3/2019 BA27 Topic1A Pricing Overview Part2 Complete
16/56
Setting the Price of a Product
Before going into the different approaches to
setting prices, it is important to review the
most basic factors affecting prices.
In setting prices, a company must considerthe following:
1. Products total cost
2. Competitors offers
3. Internal factors, and
4. External factors
By: Mario C. Angeles UST Commerce and BA
-
8/3/2019 BA27 Topic1A Pricing Overview Part2 Complete
17/56
New-Product Pricing StrategiesTwo pricing options for new products:
1. Set a high price (market skimming
pricing); and
2. Set a low price (market penetration
pricing)
1. Market skimming pricing is a strategy ofsetting a high price for a companys products
backed up by a strong promotional effort.
Under this approach, the company initially
sets high prices to skim revenues layer by
layer from the market.
NOTE: Though skimming pricing might lead
to lower demand, revenues are filled up by
high price.
By: Mario C. Angeles UST Commerce and BA
-
8/3/2019 BA27 Topic1A Pricing Overview Part2 Complete
18/56
New-Product Pricing Strategies2. Market Penetration Pricing is the
strategy of setting a low price for a
companys products also backed up by a
strong promotional support.
Under this approach, the company initially
sets a low price in order to penetrate themarket quickly and deeply to attract a large
number of buyers and capture a large
market share in the process.
NOTE: Though penetration pricing offers low
prices, revenues may be filled by moresubstantial demand.
By: Mario C. Angeles UST Commerce and BA
-
8/3/2019 BA27 Topic1A Pricing Overview Part2 Complete
19/56
New-Product Pricing StrategiesIt is not the question of which approach is
better but what will be the end result in terms
of profitability.
It also depends on the objectives of the
company.
The main objective of skimming pricing is
to make a swift return on investments by
offering products at a high price.
The main objective of penetration pricing
is to capture a large market share.
By: Mario C. Angeles UST Commerce and BA
-
8/3/2019 BA27 Topic1A Pricing Overview Part2 Complete
20/56
Market Skimming vs. Market Penetration Pricing
Market Skimming Market
Penetration
Selling Price P 400.00 per unit P 250.00 per unit
Demand 1,000 units 1,600 units
Revenues (Sales) P 400,000.00 P 400,000.00
By: Mario C. Angeles UST Commerce and BA
-
8/3/2019 BA27 Topic1A Pricing Overview Part2 Complete
21/56
New-Product Pricing Strategies
An alternative to the two aforementionedpricing approaches is establishing a
relationship between the price and the
quality of a product to come up with four
possible strategies.
1. Premium pricing strategy
2. Good value pricing strategy
3. Overcharging pricing strategy
4. Economy pricing strategy
By: Mario C. Angeles UST Commerce and BA
-
8/3/2019 BA27 Topic1A Pricing Overview Part2 Complete
22/56
New-Product Pricing Strategies
Premium pricing strategy is a strategy byselling a high-quality product at a high price.
Good value pricing strategy is a strategy
by selling a high-quality product at a low
price.
Overcharging pricing strategy is a
strategy by selling a low-quality product at a
high price.
Economy pricing strategy is a strategy byselling a low-quality products at a low price.
By: Mario C. Angeles UST Commerce and BA
-
8/3/2019 BA27 Topic1A Pricing Overview Part2 Complete
23/56
The Price-Quality Matrix
PremiumStrategy
OverchargingStrategy
Good Value
Strategy
Economy
Strategy
Quality
LowHigh
Low
High
Price
By: Mario C. Angeles UST Commerce and BA
-
8/3/2019 BA27 Topic1A Pricing Overview Part2 Complete
24/56
Cost-Based Pricing Strategies
Cost is the primary consideration under cost-
based pricing.
This strategy has three pricing
approaches:
1. Cost-plus pricing
2. Breakeven pricing
3. Target profit pricing
By: Mario C. Angeles UST Commerce and BA
-
8/3/2019 BA27 Topic1A Pricing Overview Part2 Complete
25/56
1. Cost-Plus Pricing
This is the simplest pricing method that
requires a standard markup in the cost of a
product.
This approach is also called markup pricing.
After determining the cost of a product, a
company simply sets price by adding a
standard mark-up (basically in percentage)
to the cost.
By: Mario C. Angeles UST Commerce and BA
-
8/3/2019 BA27 Topic1A Pricing Overview Part2 Complete
26/56
. Break-even Pricing
Under breakeven pricing, the selling price
enables the company to break-even.
Break-even refers to a condition where the
company neither earns profit nor incurs loss.
Three variables are needed to compute for
the break-even point:
1. Fixed costs
2. Variable costs per unit
3. Selling price
By: Mario C. Angeles UST Commerce and BA
-
8/3/2019 BA27 Topic1A Pricing Overview Part2 Complete
27/56
-
8/3/2019 BA27 Topic1A Pricing Overview Part2 Complete
28/56
Using other formula: (Geometric)
Break-even Volume Fixed Cost
Selling Price Variable Cost per unit
=
By: Mario C. Angeles UST Commerce and BA
-
8/3/2019 BA27 Topic1A Pricing Overview Part2 Complete
29/56
The Break-Even Graph
P 18,000.00
0 Sales Volume360 UNITS
TR
TC
Break-Even Volume
By: Mario C. Angeles UST Commerce and BA
-
8/3/2019 BA27 Topic1A Pricing Overview Part2 Complete
30/56
. Break-even Pricing
Example 2: CompanyAwould like to
determine how many units of its product
it should sell in order to break even. The
total fixed cost amounts to
P1,000,000.00 a year. Selling price is
P300.00 per unit. Variable cost covering
direct materials and direct labor is P200per unit. How many units must be sold
so that the company will break-even?
Given:
Fixed costs = P1,000,000.00Variable cost per unit = P200.00
Selling price = P300.00 per unit
Required: Break-even volume
(quantity)
Solution:
Break-even volume = P1,000,000.00
P300.00 P200.00
Break-even volume = 10,000 units
By: Mario C. Angeles UST Commerce and BA
-
8/3/2019 BA27 Topic1A Pricing Overview Part2 Complete
31/56
. Break-even Pricing
Example 3: CompanyA estimates that
it will b able to sell only 8,000 units the
whole year due to declining demand; at
what price must the company sell its
products to break-even?
Given:
Fixed costs = P1,000,000.00
Variable cost per unit = P200.00
Break-even volume = 8,000 units
Required: Break-even price
Formula:
P = FC + VC
Q
Where:
P = break-even price
FC = fixed costs
VC = variable cost per unit
Q = break-even volume
Solution:
P = P1,000,000.00 + P200.00
8,000
Break-even price = P325.00 per unit
By: Mario C. Angeles UST Commerce and BA
-
8/3/2019 BA27 Topic1A Pricing Overview Part2 Complete
32/56
3. Target Profit Pricing
Target Profit Pricing is an approach when
the company sets a target profit to be
earned and uses breakeven analysis to
meet said target.
Under the break-even point, the companysnet income is equal to zero, the starting
point for computation.
If the company earns zero profit under the
break-even point, it needs to determine the
price at which to sell its products to achieveits target profit.
By: Mario C. Angeles UST Commerce and BA
-
8/3/2019 BA27 Topic1A Pricing Overview Part2 Complete
33/56
3. Target Profit Pricing
Example 4: CompanyA estimates thatit will b able to sell only 8,000 units thewhole year due to declining demand atP325.00 per unit at break-even. Thecompanys fixed cost is P1,000,000.00a year. What if thee company wants toearn a target profit of P400,000.00 forthe year(instead of break-even)?Atwhat price must CompanyA sell itsproduct so that it can achieve this targetprofit?
Given:
Break-even volume = 8,000 units
Target profit = P400,000.00
Current selling price = P325.00 per unit
Required: Target profit price frombreak-even point.
Formula:
TPP = TP + CSP
Q
Where:
TTP = target profit price
TP = target profit
Q = estimated quantity to be sold
CSP = current selling price
Solution:
TTP = P400,000.00 + P325.00
8,000
Target profit price = P375.00 per unit
By: Mario C. Angeles UST Commerce and BA
-
8/3/2019 BA27 Topic1A Pricing Overview Part2 Complete
34/56
Value-Based Pricing Strategy
Value-based pricing considers buyersperception of value as the main ingredient topricing.
In this approach, the starting point is customerperception of value, not cost.
The company initially sets a price based on itsevaluation of customer perception as regardsthe products value.
The company uses this reference price todecide about product design and other costs
incurred in production.
The reference price serves as the budgetedcost for production, which means that nevermay production cost per unit exceed thisreference price, which the company believesthe market can bear.
By: Mario C. Angeles UST Commerce and BA
-
8/3/2019 BA27 Topic1A Pricing Overview Part2 Complete
35/56
Competition-Based Pricing Strategy
Buying decision will always be based uponcareful analysis and evaluation of differentoffers from competing sellers.
Oftentimes, competitors prices and offersare considered benchmarks for a
companys prices and offers.
A company normally treats competitorsprices as products of collective wisdom andbrainstorming of industry experts andparticipants.
There are two approaches under thisstrategy:
1. Going-Rate Pricing
2. Sealed-Bid Pricing
By: Mario C. Angeles UST Commerce and BA
-
8/3/2019 BA27 Topic1A Pricing Overview Part2 Complete
36/56
Competition-Based Pricing Strategy
Going-rate pricing is an approach whereina company bases its price largely on the
prices of competitors without due regard to
its own costs and to its own demand.
The companys price may be either more orless than, or the same as its major
competitors.
Sealed-bid pricing is an approach wherein
a company bases its prices on how it thinks
its competitors would price rather than on itsown costs or its own demand.
This is most applicable for service-oriented
enterprises like construction, catering
services, travel and tours, etc.
By: Mario C. Angeles UST Commerce and BA
-
8/3/2019 BA27 Topic1A Pricing Overview Part2 Complete
37/56
Competition-Based Pricing Strategy
In going-rate pricing, the company patternsits price after that of its competitors
indicating that the competitors prices are
known to the company.
In sealed-bid pricing, the competitorsprices are not divulged to the company.
By: Mario C. Angeles UST Commerce and BA
-
8/3/2019 BA27 Topic1A Pricing Overview Part2 Complete
38/56
Product-Mix Pricing Strategies
There are five approaches under thisstrategy. These are:
1. Product-Line pricing
2. Optional-Product pricing
3. Captive-Product pricing
4. By-Product pricing5. Product-Bundle pricing
By: Mario C. Angeles UST Commerce and BA
-
8/3/2019 BA27 Topic1A Pricing Overview Part2 Complete
39/56
Product-Mix Pricing Strategies
Product-line pricing is an approachapplicable to firms that develop product lines
rather than single products.
In this type of pricing, the firm may set
different prices for its product line depending
on its feature assortment.
By: Mario C. Angeles UST Commerce and BA
l d
-
8/3/2019 BA27 Topic1A Pricing Overview Part2 Complete
40/56
Product-Mix Pricing Strategies
Optional-product pricing is an approachthat offers to sell optional or accessory
products along with a main product.
Example: The regular price of a car against
a fully-loaded price of the same car.
By: Mario C. Angeles UST Commerce and BA
B M i C A l UST C d BA
-
8/3/2019 BA27 Topic1A Pricing Overview Part2 Complete
41/56
Product-Mix Pricing Strategies
Captive-product pricing is an approachwhich offer products that are essential to the
main product itself.
By: Mario C. Angeles UST Commerce and BA
B M i C A l UST C d BA
-
8/3/2019 BA27 Topic1A Pricing Overview Part2 Complete
42/56
Product-Mix Pricing Strategies
By-product pricing is an approach whichdeducts the proceeds of the by-product from
the main product.
By: Mario C. Angeles UST Commerce and BA
B M i C A l UST C d BA
-
8/3/2019 BA27 Topic1A Pricing Overview Part2 Complete
43/56
Product-Mix Pricing Strategies
Product-bundle pricing is an approachwherein a company combines several of its
products into a bundle and offers the bundle
for sale at a reduced price.
By: Mario C. Angeles UST Commerce and BA
B M i C A l UST C d BA
-
8/3/2019 BA27 Topic1A Pricing Overview Part2 Complete
44/56
Price-Adjustment Strategies
Under this classification, companies adjustprices of their products to account for
various consumer differences and changing
situations.
Under price-adjustment strategies, two
pricing approaches are considered:
1. Price discounts and allowances
2. Segmented or differentiated pricing
3. Geographical pricing
4. Promotional pricing
By: Mario C. Angeles UST Commerce and BA
B M i C A l UST C d BA
-
8/3/2019 BA27 Topic1A Pricing Overview Part2 Complete
45/56
Price-Adjustment Strategies
Discount Pricing. This pricing strategyallows a company to reduce prices to reward
customers for certain responses like paying
promptly or promoting the companys
products or services.
Some common forms of discount pricing are:
1. Cash discounts
2. Quantity discounts
3. Seasonal discounts
4. Functional discounts
5. Allowance
By: Mario C. Angeles UST Commerce and BA
By: Mario C Angeles UST Commerce and BA
-
8/3/2019 BA27 Topic1A Pricing Overview Part2 Complete
46/56
Price-Adjustment Strategies
Cash discount is a price reduction given tobuyers who pay their bills on time.
Quantity discounts are price reductions
given to buyers who purchase a product in
large volumes.
Seasonal discount is a price reduction
given to buyers who purchase merchandise
or services that are out of season.
By: Mario C. Angeles UST Commerce and BA
By: Mario C Angeles UST Commerce and BA
-
8/3/2019 BA27 Topic1A Pricing Overview Part2 Complete
47/56
Price-Adjustment Strategies
Functional discount (also known as tradediscount) offered by a manufacturer to
trade-channel members if they perform
certain selling functions (selling, sorting, and
recordkeeping)
Allowance is an extra payment designed to
gain reseller participation in special
programs.
1. Trade-in allowancesare granted for
turning in an old item when buying a newone.
2. Promotional allowancesrewards
dealers for participating in advertising
and sales support programs.
By: Mario C. Angeles UST Commerce and BA
By: Mario C Angeles UST Commerce and BA
-
8/3/2019 BA27 Topic1A Pricing Overview Part2 Complete
48/56
Price-Adjustment Strategies
Segmented Pricing. In this pricing strategy,a company offers a product in two or more
prices allowing for differences in customers,
locations, time, or products but not
necessarily based on differences in cost.
Under this approach are:
1. Customer-segmented pricing
2. Product-form pricing
3. Location pricing, and
4. Time pricing
5. Channel pricing
By: Mario C. Angeles UST Commerce and BA
By: Mario C Angeles UST Commerce and BA
-
8/3/2019 BA27 Topic1A Pricing Overview Part2 Complete
49/56
Price-Adjustment Strategies
Customer-segment pricing is a strategy inwhich different customers pay different rates
or prices for the same product or service.
Product-form pricing is a strategy in which
different versions of a product or service
are priced differently, but not according to
differences in their costs.
Location pricing is a strategy in which
different location (place or area) are priced
differently even the cost of the product orservice is the same.
Time pricing varies the price of a certain
product according to the time or season of the
year.
By: Mario C. Angeles UST Commerce and BA
By: Mario C Angeles UST Commerce and BA
-
8/3/2019 BA27 Topic1A Pricing Overview Part2 Complete
50/56
Price-Adjustment Strategies
Channel pricing a firm carries a differentprice depending on the distribution point.
By: Mario C. Angeles UST Commerce and BA
By: Mario C Angeles UST Commerce and BA
-
8/3/2019 BA27 Topic1A Pricing Overview Part2 Complete
51/56
Price-Adjustment Strategies
Geographical Pricing. The companydecides how to price its products to different
customers in different locations and
countries.
1. Barter
2. Compensation deal
3. Buyback arrangement
4. Offset
Barter. The direct exchange ofgoods, with no money and no
third party involved.
Compensation deal. The seller
receives some percentage ofthe payment in cash and the
rest in products.
Buyback arrangement. The
seller sells a plant, equipment,
or technology to anothercountry and agrees to accept
as partial payment products
manufactured with the
supplied equipment.
Offset. The seller receives full
payment in cash but agrees tospend substantial amount of
the money in that country
within a stated time period.
By: Mario C. Angeles UST Commerce and BA
By: Mario C Angeles UST Commerce and BA
-
8/3/2019 BA27 Topic1A Pricing Overview Part2 Complete
52/56
Price-Adjustment Strategies
Promotional Pricinga technique tostimulate early purchase.
1. Loss-leader pricing
2. Special-event pricing
3. Cash rebates
4. Low-interest financing5. Longer payment terms
6. Warranties and service contracts
7. Psychological discounting
(For supermarkets and
department stores) Dropping
the price on well-known
brands to stimulate additional
store traffic.
Sellers will establish special
prices in certain seasons to
draw in more customers.
Offering cash rebates to
encourage purchase of the
manufacturers products
within a specified time period.
Instead of cutting its price, the
company can offer customers
low-interest financing.
Sellers stretch loans over
longer periods and thus lower
the monthly payments.
Companies can promote sales
by adding a free or low-cost
warranty or service contract.
Companies can promote sales
by adding a free or low-cost
warranty or service contract.
By: Mario C. Angeles UST Commerce and BA
By: Mario C. Angeles UST Commerce and BA
-
8/3/2019 BA27 Topic1A Pricing Overview Part2 Complete
53/56
Price-Adjustment Strategies
However, before segmented pricing isconsidered effective, five conditions must be
met:
1. The market must be segmentable and
the different segments must show
different degrees of demand;
2. Competitors must not undersell the
company in the segment being charged
the higher price;
3. The costs of segmenting and watching
the market must never exceed the extra
income obtained from the price
difference;
4. The practice should not lead to customer
resentment and ill will; and
5. The segmented pricing must be legal!
By: Mario C. Angeles UST Commerce and BA
By: Mario C. Angeles UST Commerce and BA
-
8/3/2019 BA27 Topic1A Pricing Overview Part2 Complete
54/56
Responding to Competitors
Price Changes
Brand leaders also face lower-
priced private-store brands.
The brand leader can respond
in several ways
Maintain price
Maintain price and add value
Reduce price
Increase price and improve
quality
Launch a low-price fighter line
By: Mario C. Angeles UST Commerce and BA
By: Mario C. Angeles UST Commerce and BA
-
8/3/2019 BA27 Topic1A Pricing Overview Part2 Complete
55/56
Price-Reaction Program for meeting a Competitors
Price Cut
Has competitor cut
his price?
Is the price likely to
significantly hurt
our sales?
By less than 2%
Include few peso-off
coupon for the next
purchase.
Hold our price at
present level;
continue to watch
competitors price
Is it likely to be a
permanent price
cut?
How much has his
price been cut?
By 2 - 4%
Drop price by half of
the competitors
price cut.
By more than 4%
Drop price to
competitors price
No
NoNo
Yes
Yes Yes
By: Mario C. Angeles UST Commerce and BA
By: Mario C. Angeles UST Commerce and BA
-
8/3/2019 BA27 Topic1A Pricing Overview Part2 Complete
56/56
END OF TOPIC
Next: Topic 2 Introduction to Price Advantage
y o C ge e US Co e ce