chapter14, pricing strategy

8/14/2019 Chapter14, Pricing Strategy

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Developing Pricing Strategiesand Programs

Chapter 14

Marketing Management


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Buyers can:

Get instant pricecomparisons fromthousands of vendors.

Name their price andhave it met.

Get products free.

Price Changing in the Internet

Sellers can:

Monitor customerbehavior and tailorsoffers to individuals.

Give certain customersaccess to special prices.

Both Buyers and Sellers can:

Negotiate prices in online auctions and exchanges

Internet reverse the fixed pricing trend, since:


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Consumer Psychology and Pricing

Economists assume: The consumer are price takers. Consumers accept price at face value.

Marketers recognize, that consumers often actively:

Process information Interpreting price from their knowledge Formal communications Informal communications Other factors


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Consumer Psychology and Pricing (cont.)

Consumer perceptions of price based on:

Reference Price

To compare an observed price to an internalreference price their remember Price-Quality Inference

Use price as an indicator of quality

Price Ending Price should end in an odd number

Pricing Cues

Limited availability


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Setting the Price

Six step procedure1. Selecting the pricing objective

2. Determining demand3. Estimating costs

4. Analyzing competitors cost, prices and offers

5. Selecting a pricing method6. Selecting the final price


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Step 1Selecting the Pricing Main Objectives

Survival

> Overcapacity, intense competition or changing consumer wants.

Maximum Current Profit

> Emphasizing current performance.

Maximum Market Share

> Market Penetration Pricing Strategy.


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Step 1Selecting the Pricing Main Objectives

Maximum Market Skimming

> Skim the maximum revenue from various segments.

Product-quality Leadership

> High quality = premium price.

Other Objectives


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Step 2Determining Demand

Price Sensitivity

> Understanding customers sensitivity in price to estimate demand.

Estimating Demand CurveMeasure to attempt to measure demand curves:

> Surveys

> Price Experiments

> Statistical analysis

Price Elasticity of Demand

> Responsiveness of Demand through price changing


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Figure 14.2Inelastic and Elastic Demand


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Step 3Estimating Costs

Types of Costs and Levels of Production

> Fixed Cost

> Variable Cost> Total Cost

> Average Cost

Accumulated Production

Target Costing


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Figure 14.4Cost per unit as a function of Accumulated Production:

The Experience Curve


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Step 4Analyzing Competitors Costs, Prices and Offers

Research

Analyze competitors current financial situation, recentsales, customer loyalty and corporate objectives.

Compare

Evaluate


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Step 5Selecting a Pricing Method

Markup pricing

Example

Variable cost = $10 Fixed cost = $300,000 Expected unit sales = 50,000 20% markup on sales


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Target-Return pricing

Example

Invested capital = $1,000,000Targeted ROI = 20%


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Figure 14.6Break-Even Chart for Determining Target-Return Price

and Break-Even Volume


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Perceived value pricingBuyers image on product performance, channel deliverables, warrantyquality, customer support, suppliers reputation, trustworthiness, andesteem.

Value pricing

Becoming a low-cost producer without sacrificing quality.

Going-Rate pricing


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Auction-Type Pricing

English auctions (auction bid)

Dutch auctions (descending bid)

Sealed-bid auctions


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Step 6Selecting the Final Price

Impact of other marketing activities

Company pricing policies

Gain-And-Risk-Sharing pricing

Impact of price on other parties


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Adapting the Price

Geographical Pricing (Cash, Countertrade, Barter)

Price Discount and Allowances

Promotional Pricing

Differentiated Pricing


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Geographical Pricing (Cash, Countertrade, Barter)

The company decides how to price its product todifferent locations and countries.

Countertrade Barter Compensation deal

Buyback arrangement Offset


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Price Discount and Allowances

Discount Quantity Discount

Functional Discount

Seasonal Discount

Allowance


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Promotional Pricing

Loss-leader pricing

Special-event pricing

Cash rebates Low-interest financing

Longer payment terms

Warranties and service contracts Psychological discounting


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Differentiated Pricing

Price discrimination First degree

Second degree Third degree

Customer-segment pricing Product-form pricing

Image pricing Location pricing

Time pricing


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Initiating and Responding to Price Change

Initiating Price Cuts Initiating Price Increases

Responding to Competitors Price Changes


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Thank You

chapter14, pricing strategy

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