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Pricing Products: Pricing Pricing Products: Pricing considerations and approachesconsiderations and approachesbyby
Kotler on Marketing
Sell value, not price.
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INTRODUCTION
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Pricing involves “harvesting your profit potential”
If effective product development, promotion, and distribution sow the seeds of business success, effective pricing is the harvest
Price is the amount of money charged for a product or service. Broadly, price is the sum of all the values that consumers exchange for the benefits of having or using the product or service.
INTRODUCTIONNegotiation between buyers and
sellersFixed pricing policiesDynamic Pricing charging
different prices depending on individual customers and situations.
Pricing is the most flexible element and only element which produces revenue.
Pricing is the number one problem facing marketing executives.
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INTRODUCTIONGeneral Pricing Approaches
Cost Based Pricing
Value Based Pricing Basing prices on the product’s
perceive value In value pricing , the company
sets its target price based on customer perceptions and the product value.
The targeted value and price then drive decisions about product design and what costs can be incurring
Competition Based Pricing7-5
NEW PRODUCT PRICING STRATEGIES
Market – Skimming PricingSetting a high price for a new product
to skim maximum revenues layer by layer from the segments willing to pay the high price
The company makes fewer but more profitable sales
Market skimming makes sense only under certain conditionsThe quality and images supports higher
pricesCost of producing a smaller volume
cannot be so high that they cancel advantage of charging more
Competitors should not be able to enter the market easily and undercut the high price
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NEW PRODUCT PRICING STRATEGIES
Market Penetration PricingSetting a low price for a new product
in order to attract a large number of buyers and a large market share
The high sales volume results in falling costs, allowing the company to cut its price even further.
Several conditions must be met for this low price strategy to workThe market must be highly price
sensitiveProduction and distribution costs must
fall as sales volume increasesThe low price must help keep out the
competition7-7
PRODUCT MIX PRICING STRATEGY
Product Line Pricing
Optional Product Pricing
Captive Product PricingIn case of services, this strategy
is called “Two Part Pricing”By Product Pricing
“cocoa bean shells” – Hershey claims that cocoa mulch is perfect for gardens and landscaping . It repels insects, adds protein to soil, and smells like chocolate.
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PRODUCT ADJUSTMENT STRATEGIES
Discount and Allowance PricingCash , Quantity, Functional
(trade), SeasonalSegmented Pricing
Customer segment (eg students in museums), product form pricing, location pricing, time pricing
Psychological PricingSellers consider the psychology of
prices and not simply the economics.
Reference prices , other cues Promotional Pricing (cash
rebates)Geographical Pricing
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Initiating and Responding to Price Changes
Initiating Price CutsExcess capacity, to boost
sales, falling market share, domination of marketing through lower costs
Initiating Price IncreasesCost inflation, Over demand, May increase prices visibly
or invisibly
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Initiating and Responding to Price Changes
Possible responses to higher costs or overhead without raising prices include:Shrinking the amount of product instead of raising
the priceSubstituting less expensive materials or ingredientsReducing or removing product featuresRemoving or reducing product services, such as
installation or free deliveryUsing less expensive packaging material or larger
package sizesReducing the number of sizes and models offered
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Initiating and Responding to Price Changes
Reactions to Price ChangesCustomer ReactionsCompetitor Reactions
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Initiating and Responding to Price Changes
Factors to consider before responding to price changes
Why did the competitor change the price
To take more market share? To use excess capacity? To meet changing cost conditions ? To lead an industry wide price change? Is the price change temporary or ..?
Competitors may have spend much time in preparing this decision but the company may have to react within hours or days ….
Solution ???7-13
Initiating and Responding to Price Changes
Responding to Competitors’ Price Changes
Maintain priceMaintain price but raise the
perceived value Improve communications
Reduce priceMarket is price sensitive, loose
too much share, cutting prices will reduce profits in short run,
The company must maintain its perceived quality when it reduces its prices.
Increase price and improve qualityLaunch a low-price fighter line
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