Date post: | 08-Jan-2016 |
Category: |
Documents |
Upload: | charujagwani |
View: | 3 times |
Download: | 0 times |
of 31
Pricing Strategies
Week 5
Lecture Outline
Defining Pricing, its Objectives
Factors affecting Pricing
Procedures for Setting the Price
Types of Pricing Strategies
To understand how consumer process and evaluate prices
To understand how should a company set prices initially for products &
services
To understand that when company should initiate a price changes
To understand the decision on how much of the strategic pricing gap between
cost and perceived value to capture.
Learning Outcomes
Gillette Commands a
Price Premium
Price
Pricing is a fundamental aspect of financial modeling, and is one of the four
Ps of the marketing mix .
Price is the only revenue generating element amongst the four Ps , the rest
being cost centers
A well chosen price should do three things:
Achieve the financial goals of the company (e.g., profitability)
Fit the realities of the marketplace (Will customers buy at that price?)
Support a product's positioning and be consistent with the other variables in
the marketing mix.
Price is influenced by the type of distribution channel used, the type of
promotions used, and the quality of the product
Price will usually need to be relatively high if manufacturing is expensive,
distribution is exclusive, and the product is supported by extensive advertising
and promotional campaigns
A low price can be a viable substitute for product quality, effective
promotions, or an energetic selling effort by distributors
Pricing is the process of determining what a company will receive in
exchange for its products. Pricing factors are manufacturing cost, market
place, competition, market condition, quality of product.
Price
Synonyms for Price
Rent
Tuition
Fee
Fare
Rate
Toll
Premium
Honorarium
Special assessment
Bribe
Dues
Salary
Commission
Wage
Tax
Common Pricing Mistakes
Determine costs and take traditional industry margins
Failure to revise price to capitalize on market changes
Setting price independently of the rest of the marketing mix
Failure to vary price by product item, market segment, distribution
channels, and purchase occasion
Failure to identify the competitive forces acting in the market place.
Failure to sense the customer perceptions about the product.
Factors Affecting Pricing
Cost of the Product or Service, distribution involved & promoting
the product
Benefits to be transferred to customers in forms of discounts &
premiums
ROI
Maximize Profits
Competitors Price
Government Regulation
Market Share
Setting The Price
Select the price objective
Determine demand
Estimate costs
Analyze competitor price mix
Select pricing method
Select final price
Step 1: Selecting the Pricing Objective
Survival
Maximum Current Profit
Maximum Market Share
Maximum Market Skimming
Product-Quality Leadership
Step 2: Determining Demand
Price Sensitivity
Estimating
Demand Curves
Price Elasticity
of Demand
Inelastic and Elastic Demand
Factors Leading to Less Price Sensitivity
The product is more distinctive
Buyers are less aware of substitutes
Buyers cannot easily compare the quality of substitutes
The expenditure is a smaller part of buyers total income
The expenditure is small compared to the total cost of the end product
Part of the cost is paid by another party
The product is used with previously purchased assets
The product is assumed to have high quality and prestige
Buyers cannot store the product
Step 3: Estimating Costs
Types of Costs
Target Costing
Accumulated
Production
Activity-Based
Cost Accounting
Cost Terms and Production
Fixed costs
Variable costs
Total costs
Average cost
Cost at different levels
of production
Step 4 Analyze Competitors Price Mix
Firm must take into consideration the competitors price mix to note the
reactions.
It depends upon the firm to charge more, the same or less than competitor.
Whether competitor reacts in a standard way, or take it as a fresh challenge
must be accounted along with his recent sales, customer loyalty and corporate
objectives.
It depends upon the competitor what are his pricing objectives whether he
wants large market share or higher profits and then accordingly marketer should
try to set the price.
Step 5: Selecting a Pricing Method
Markup Pricing
Target-Return Pricing
Perceived-value Pricing
Value Pricing
Going-Rate Pricing
Auction-Type Pricing
Break-Even Chart
Auction-Type Pricing
English auctions (Ascending Bids)
Dutch auctions (Descending Bids)
Sealed-bid auctions
Step 6: Selecting the Final Price
Impact of other marketing activities (Brands quality, advertising
relative to the competition,)
Company pricing policies (Average quarterly balance by banks,
cancellation charges on tickets. Regulation & collusion is important)
Gain-and-risk sharing pricing ( product has a high perceived level of
risk )
Impact of price on other parties (dealers, distributors, suppliers,
competitors & government)
Price-Adaptation Strategies
Geographical Pricing
Discounts/Allowances
Differentiated Pricing
Promotional Pricing
Cont..
Countertrade
Barter
Compensation deal
Buyback arrangement
Offset
Discounts/ Allowances
Cash discount
Quantity discount
Functional discount
Seasonal discount
Allowance
Promotional Pricing Tactics
Loss-leader pricing
Special-event pricing
Cash rebates
Low-interest financing
Longer payment terms
Warranties and service
contracts
Psychological discounting
Cont.
Special festival pricing
by
Coca-Cola on the
occasion of Ramzan in
Pakistan.
Differentiated Pricing (To accommodate, customers,
products & locations)
Customer-Segment Pricing
Product-Form Pricing
Image Pricing
Channel Pricing
Location Pricing
Time Pricing
Yield Pricing
A company sells a product or service at two or more prices that do not reflect a
difference in costs.
In 1st degree of discrimination seller charges separate price depending on intensity
of demand.
In 2nd degree of discrimination seller charges less from buyers who buy large
volume.
In 3rd degree of discrimination seller charges different amount from different
buyers.
Pricing for Rural Markets
A large proportion have a low and seasonal income
Several approaches adopted by retailers and companies to address this
Rural retailers often extend credit
Retailers also break the bulk and sell in loose form, in small quantities
Companies use a similar strategy by introducing low-unit packing or LUP
Companies also develop low-priced products with a target price for rural
markets
Companies might offer refill packs or recyclable and reusable packs
Increasing Prices
Delayed quotation pricing
Escalator clauses
Unbundling
Reduction of discounts
Brand Leader Responses to Competitive Price Cuts
Maintain price
Maintain price and add value
Reduce price
Increase price and improve quality
Launch a low-price fighter line
For U To Take a Decision?
Is the right price a fair price?
Take a position:
1. Prices should reflect the value that
consumers are willing to pay.
or
2. Prices should primarily just reflect the cost
involved in making a product.