topic 8: creating market offerings (2). objectives setting the price adapting the price initiating...
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Topic 8: creating market offerings (2)
Objectives
• Setting the Price• Adapting the Price• Initiating & Responding to Price Changes
PriceHigh Medium Low
High
Low
Pro
duct
Qua
lity
Med
Premium Value
Premium Value
Medium Value
Economy
Overcharging
Rip-Off False Economy
Price - Quality Strategies
Setting Pricing PolicySetting Pricing Policy
1. Selecting the pricingobjective
2. Determining demand
3. Estimating costs
4. Analyzing competitors’costs, prices, and offers
5. Selecting a pricingmethod
6. Selecting final price
Types of CostsTypes of Costs
Total CostsSum of the Fixed and Variable Costs for a Given Level of Production
Total CostsSum of the Fixed and Variable Costs for a Given Level of Production
Fixed Costs(Overhead)Costs that don’tvary with sales or production levels.
Executive SalariesRent
Fixed Costs(Overhead)Costs that don’tvary with sales or production levels.
Executive SalariesRent
Variable Costs
Costs that do varydirectly with the level of production.
Raw materials
Variable Costs
Costs that do varydirectly with the level of production.
Raw materials
The Three C’s ModelThe Three C’s Modelfor Price Settingfor Price Setting
Pricing Methods
• Markup Pricing• Target Return Pricing• Perceived Value Pricing• Value Pricing• Going-Rate Pricing• Sealed-Bid Pricing
Some important pricing definitions
• Utility: The attribute that makes it capable of want satisfaction
• Value: The worth in terms of other products
• Price: The monetary medium of exchange.
Value Example: CaterpillarTractor is $100,000 vs. Market
$90,000$90,000 if equal 7,000 extra durable 6,000 reliability 5,000 service 2,000 warranty $110,000 in benefits - $10,000
discount!
Promotional Pricing
• Loss-leader pricing• Special-event pricing• Cash rebates• Low-interest financing• Longer payment terms• Warranties & service contracts• Psychological discounting
Psychological PricingPsychological Pricing
Most Attractive?Most Attractive?
Better Value?Better Value?
Psychological reason to price this Psychological reason to price this way?way?
A32 oz.
$2.19
B26 oz.
$1.99
Assume Equal Quality
Discriminatory Pricing
Time
Product-form
Customer Segment
Location
Pricing strategies
• New-product pricing– Market skimming pricing– Market penetration pricing
• Product mix pricing– Product line pricing– Optional-product pricing– Captive-product pricing– By-product pricing– Product bundle pricing
Price changes:Initiating price changes
• Price-cutting– low-quality trap– Fragile-market-share trap– Shallow-pockets trap
• Price-increasing– Delayed quotation pricing– Escalator clauses– Unbundling– Reduction of discounts
Price changes:Responding to price changes
• Maintain price• Maintain price and add value• Reduce price• Increase price and improve quality• Launch a low-price fighting line