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DEVELOPING PRICING
STRATEGIES AND
PROGRAMS


        MARKMA

       Rhea G. Jardin
       May 11, 2012



   www.donnasia.blogspot.com
Outline



1. 6 Steps in Setting the Price
2. 4 Price-adaptation Strategies




             www.donnasia.blogspot.com
What is Price?

Price is :
- the one element of the marketing mix that
   produces revenue

-   the amount paid for some goods or
    services




              www.donnasia.blogspot.com
Concept 1:

         6 Steps in Setting the Price
 Selecting the             Determining                    Estimating
pricing objective            demand                          costs
       Price
      objective              Demand                         Costs




Selecting the               Selecting              Analyze competitors’
                         pricing method           costs, prices, and offers
 final price
        Final                Pricing
        price                method                      Competitors




                      www.donnasia.blogspot.com
Concept 1:
                   1. Selecting the pricing objective
         Selecting the
        pricing objective
                  Price
                 objective




Survival (B/E)          Maximize profit

                           Maximize
                          market share
     Product
   leadership    Maximize market
                    skimming




                                          www.donnasia.blogspot.com
Concept 1:
         2. Determining Demand
 Selecting the                 Determining
pricing objective                demand
       Price
      objective                     Demand




                                                   Surveys
                       Demand
                       elasticity



                                    Statistical
                                     analysis        Price
                                                  experiments




                      www.donnasia.blogspot.com
Concept 1:
         3. Estimating costs
 Selecting the            Determining                        Estimating
pricing objective           demand                              costs
       Price
      objective             Demand                             Costs




                                                  Learning
                                                   curve                Fixed and
                                                                         Variable

                                                                   Cost per
                                                                    unit of
                                                                  production




                      www.donnasia.blogspot.com
Concept 1:
         4. Analyze competitors’ costs, prices and
         offers
 Selecting the         Determining        Estimating
pricing objective           demand                            costs
       Price
      objective             Demand                           Costs




                                                  Analyze competitors’ costs,
                                                       prices, and offers


                                                           Competitors



                                                                         Evaluate the
                                                                         competitors’
                                                                           price and
                                                                         product value




                      www.donnasia.blogspot.com
Concept 1:
         5. Selecting price method
 Selecting the                                      Determining                              Estimating
pricing objective                                     demand                                    costs
       Price
      objective                                       Demand                                   Costs




                                                 Selecting                            Analyze competitors’
                                              pricing method                         costs, prices, and offers

                                                      Pricing
                                                      method                                Competitors
                                                                   Price
                              Perceived                           markup
                                value


                                          Value
                                          pricing
                                                                            Target
                      Going-rate                                             ROI
                       pricing
                                             Auction-                Break-
                                           type pricing            even point


                                     www.donnasia.blogspot.com
Concept 1:
                 6. Selecting final price
     Selecting the                         Determining                     Estimating
    pricing objective                        demand                           costs
                Price
               objective                     Demand                          Costs




     Selecting the                          Selecting             Analyze competitors’ costs,
                                         pricing method                prices, and offers
      final price
                Final                        Pricing
                price                        method                        Competitors



 Gain & risk
  sharing                  High
                        advertising



                   Pricing policies
Price fixing


                                      www.donnasia.blogspot.com
Concept 1:


         Selecting the
                      6 Steps in Setting the Price                        Determining                                        Estimating
        pricing objective                                                   demand                                              costs
                     Price
                    objective                                                Demand                                            Costs




                                                                                                    Surveys       Learning
                                                                Demand                                             curve
Survival (B/E)             Maximize profit                      elasticity                                                               Fixed and
                                                                                                                                          Variable
                              Maximize
                             market share                                                                                           Cost per
                                                                             Statistical                                             unit of
                                                                              analysis             Price
     Product                                                                                    experiments                        production
   leadership       Maximize market
                       skimming

         Selecting the                                                 Selecting                                 Analyze competitors’ costs,
                                                                    pricing method                                    prices, and offers
          final price
                     Final                                                   Pricing
                     price                                                   method                                          Competitors
                                                                                            Price
                                                    Perceived                              markup
                                                      value
                                                                                                                                           Evaluate the
      Gain & risk                                                                                                                          competitors’
       sharing                                                  Value
                                 High                           pricing                                                                      price and
                              advertising                                                                                                  product value
                                                                                                        Target
                                            Going-rate                                                   ROI
                                             pricing
                         Pricing policies                          Auction-                   Break-
    Price fixing                                                 type pricing               even point


                                                           www.donnasia.blogspot.com
Concept 2:

4 Price-adaptation strategies


    1. Geographical pricing
    2. Price discounts and
       allowances
    3. Promotional pricing
    4. Differentiated pricing




             www.donnasia.blogspot.com
Concept 2:
   1. Geographical pricing




      Barter                         Compensation deal
 Direct exchange of goods               Payment in products and cash




Buyback arrangement                                         Offset
  Payment in form of products
  manufactured by the supplied                  Receives payment in cash but agrees to
  equipment and cash                            spend some of the money in the products of
                                                that country


                            www.donnasia.blogspot.com
Concept 2:
    2. Price discounts and allowances




 Cash discount                    Quantity discount
  Discounts given to cash,         Discounts given to those
 early or prompt payments          who buy large volumes



                                                              Seasonal discount
                                                              Discounts given to products or
                                                              services that are out of season


Trade discount                       Allowances
   Discounts given by             Discounts given to gain
manufacturers to resellers        reseller participation in
                                     special programs


                             www.donnasia.blogspot.com
Concept 2:
       3. Promotional pricing




Special-event pricing                               Longer payment
                                                        terms


                            Low-interest
                             financing


   Cash rebates
                                                     Warranties and
                                                     service contracts


                        www.donnasia.blogspot.com
Concept 2:
       4. Differentiated pricing
Price discrimination
   - selling a product at two or more prices

Customer-segment pricing
  - different customer groups pay different prices
  for the same product or service

Product-form pricing
   - different versions of the product are priced differently, but not
   proportionately to their costs

Image pricing
  - the same product are priced at two different levels based on image
  differences




                         www.donnasia.blogspot.com
Concept 2:
      4. Differentiated pricing
Channel pricing
  - a product is priced depending on where it was purchase (fine
  restaurant, fast-food chain, or vending machine)

Location pricing
   - same product is priced differently at different locations even though
   the cost is the same

Time pricing
   - prices are varied by season, day, or hour (weekend vs weekdays,
   “early bird” customers)




                        www.donnasia.blogspot.com
DEVELOPING PRICING
STRATEGIES AND
PROGRAMS


        MARKMA

       Rhea G. Jardin
       May 11, 2012



   www.donnasia.blogspot.com
DEVELOPING PRICING
  STRATEGIES AND
    PROGRAMS




         Shelle Caiga
        MBA Standard
        May 11, 2012
       www.donnasia.blogspot.com
Outline: Developing Pricing
  Strategies and Programs
I. Consumer Psychology and Pricing
II. Steps in Setting Price
III. Learning what Price Adaptation is all about.
IV. Promotional Pricing Tactics
V. Differentiated Pricing
VI. Increasing Prices
VII. Brand Leader Responses To Competitive
    Price Cuts

               www.donnasia.blogspot.com
How do consumers process &
     evaluate prices?




      process                    prices




     evaluate

     www.donnasia.blogspot.com
CONSUMER PSYCHOLOGY
     and PRICING


                  REFERENCE PRICES

                  PRICE-QUALITY INFERENCES

                  PRICE ENDINGS

                  PRICE CUES



   www.donnasia.blogspot.com
Definition of Terms:

CONSUMER PSYCHOLOGY: provides
opportunities to examine issues such as what factors are most
important…
   when people decide to purchase a particular item
   how customers determine the value of a service
   and whether or not television & magazine advertisements can convince a
   reluctant consumer to try a new product for the 1st time.


PRICING: is the process of determining what a company
   will receive in exchange for its products




                    www.donnasia.blogspot.com
REFERENCE PRICES…
  is a strategy in which a product is sold at a price just
below its main competing brand.

  is one component of psychological pricing – sellers
consider the psychology of prices & not simply the
economics.

 are prices that buyers carry in their minds and refer to
when looking at a given product.




                    www.donnasia.blogspot.com
PRICE CUES
When to use…

 Customers purchase item infrequently

 Customers are new

 Product designs vary over time

 Prices vary seasonally

 Quality or sizes vary across stores



               www.donnasia.blogspot.com
How should a company set prices
    for products or services?
STEPS:
   1) Select the PRICE OBJECTIVE
       2) Determine DEMAND

            3) Estimate COSTS

                 4) Analyze competitor PRICE MIX

                         5) Select PRICING METHOD

                               6) Select FINAL PRICE

            www.donnasia.blogspot.com
I. SELECT THE PRICE OBJECTIVE

                     Survival

                     Maximum current profit

                     Maximum market share

                     Maximum market skimming

                     Product – quality leadership



       www.donnasia.blogspot.com
II. DETERMINE DEMAND

 Price sensitivity

 Estimating demand curves

 Price elasticity of demand




                  www.donnasia.blogspot.com
III. ESTIMATE COSTS



                  Types of Costs

                  Accumulated Production

                  Activity – based Cost Accounting

                  Target Costing




       www.donnasia.blogspot.com
IV. ANALYZE COMPETITOR PRICE
         MIX

 Identify nearest price
competitors

 Take competitor’s features and
prices into account

 Make decision to charge
more, the same or less than
competitors

 Monitor competitors’ reaction to
your pricing strategy
                     www.donnasia.blogspot.com
V. SELECT PRICING METHOD

                            Mark up Pricing

                            Target-return pricing

                            Perceived-value pricing

                            Value pricing

                            Going-rate pricing

                            Auction-type pricing

       www.donnasia.blogspot.com
VI. SELECT THE FINAL PRICE

 Impact of other marketing
activities

 Company pricing policies

 Gain-and-risk sharing pricing

 Impact of price on other parties




                    www.donnasia.blogspot.com
PRICE-ADAPTATION STRATEGIES

     GEOGRAPHICAL PRICING

    DISCOUNTS / ALLOWANCES

     PROMOTIONAL PRICING

    DIFFERENTIATED PRICING




       www.donnasia.blogspot.com
PRICE-ADAPTATION STRATEGIES
               COUNTERTRADE

 Barter

 Compensation deal

 Buyback arrangement

 Offset




              www.donnasia.blogspot.com
PRICE-ADAPTATION STRATEGIES
         DISCOUNTS / ALLOWANCES
 Cash Discount             Seasonal Discount

 Quantity Discount         Allowance

 Functional Discount




               www.donnasia.blogspot.com
PROMOTIONAL PRICING TACTICS

 Loss-leader pricing              Longer payment terms

 Special-event pricing            Warranties & service contracts

 Low-interest financing           Cash Rebates
                Psychological discounting




                  www.donnasia.blogspot.com
DIFFERENTIATED PRICING &
      PRICE DISCRIMINATION
 Customer-segment pricing                 Channel pricing

 Product-form pricing                     Location pricing

 Image pricing                            Time pricing
                       Yield pricing




                  www.donnasia.blogspot.com
INCREASING PRICES

 Delayed quotation pricing

 Escalator clauses

 Unbundling

 Reduction of discounts




               www.donnasia.blogspot.com
BRAND LEADER RESPONSES TO
         COMPETITIVE PRICE CUTS

 Maintain price

 Maintain price & add value

 Reduce price

 Increase price & improve quality

Launch a low-price fighter line



                     www.donnasia.blogspot.com
DEVELOPING PRICING
  STRATEGIES AND
    PROGRAMS




         Shelle Caiga
        MBA Standard
        May 11, 2012
       www.donnasia.blogspot.com
Chapter 14
Developing Pricing
Strategies and Programs


               Donna Sia
              May 11, 2012




         www.donnasia.blogspot.com
OUTLINE:
When setting effective pricing policy a company
  1. Follows six pricing procedures
  2. Selects a pricing structure that
     reflects various situations
  3. Chooses what price adaptation
     strategy to use
  4. Examine the effect of price changes
  5. Responds to competitors price
     challenge

              www.donnasia.blogspot.com
Price is the only element in
the marketing mix that
produces revenue;


the others produce cost.



             www.donnasia.blogspot.com
Consumers use common price
references.




 Fair price                     Typical Price




Lower-bound                    Last Price Paid
              www.donnasia.blogspot.com
They may also refer to:




Competitor’s Price             Usual Discounted Price




             Expected Future Price
              www.donnasia.blogspot.com
Companies follow 6 steps
    when setting prices.
1 Select the price objective

      2 Determine demand

            3 Estimate costs

        4 Analyze competitor price mix

               5 Select pricing method

                        6 Select final price
                www.donnasia.blogspot.com
In selecting price objectives,
      companies must look at




                  Maximum                    Maximum
    Survival
                 current profit             market share




Maximum market skimming        Product-quality leadership
                www.donnasia.blogspot.com
Demand can be determined by
 examining:




 Price            Estimating              Price Elasticity
Sensitivity        Demand                   of Demand
                    Curves

              www.donnasia.blogspot.com
Changes in price affect
         consumer demand:




Source: Marketing Management, Kotler and Keller, 13th ed.
                          www.donnasia.blogspot.com
Customers are likely to be less
     sensitive to price changes when:




product is more distinctive       less aware of substitutes




                                      expenditure is a
 cannot easily compare the            smaller part of
    quality of substitutes            buyer’s total income
                   www.donnasia.blogspot.com
Customers are likely to be less
      sensitive to price changes when:




small compared to the total cost      Part of the cost is paid
of the end product                       by another party




                   used with previously
                   purchased assets
                    www.donnasia.blogspot.com
Customers are likely to be less
    sensitive to price changes when:




assumed to have high quality        cannot store the product
and prestige


                  www.donnasia.blogspot.com
Costs can either be fixed or
    variable




                                         process



Fixed Cost    Variable Cost
                                          output
             www.donnasia.blogspot.com
The sum of variable and fixed
cost for any given level of
production is the total cost




      www.donnasia.blogspot.com
As production accumulates
         average cost decreases




Source: Marketing Management, Kotler and Keller, 13th ed.
                          www.donnasia.blogspot.com
To arrive at target cost, first




determine target             given product’s appeal
price and desired            and competitor’s price
function

 Then: Target Selling Price =   $ 9.90
          Less Profit Margin = $ 3.40
         Target Cost         = $ P 6.50
              www.donnasia.blogspot.com
Different pricing methods can
be used in varying situations

         Markup pricing
      Target-return pricing
     Perceived-value pricing

         Value pricing

       Going-rate pricing

      Auction-type pricing

      www.donnasia.blogspot.com
Markup Pricing is just adding
       a standard mark-up to the
       product’s cost.
Variable cost per unit $10.00
Fixed Cost             $ 300,000.00
Expected Unit Sales 50,000 units

Unit cost= variable cost + fixed cost
                               unit sales
             = $10.00+ $ 300,000.00
                       50,000
             = $16.00
Desired Mark Up= 20%
Selling Price= Unit Cost       = $16.00 = $20
             (1- desired return) (1-0.20)

                   www.donnasia.blogspot.com
Target-return pricing is used
      by companies who need to
      make a fair return on
      investment
Desired ROI = 20% or € 200,000

Target-return on price

= unit cost + desired return x investment capital
                       unit sales
= $16.00 + 0.20 x $1,000,000.00 = $20.00
                 50,000

                 www.donnasia.blogspot.com
Break-even analysis is used to
           determine target return price
           and break-even volume




Source: Marketing Management, Kotler and Keller, 13th ed.
                          www.donnasia.blogspot.com
Perceived Value Pricing
$ 90,000 tractor’s price = competitor’s price

$ 7,000 superior durability

$ 6,000 superior reliability

$ 5,000 superior service

$ 2,000 longer warranty

$ 110,000 superior value

-   10,000 discount

$ 100,000 final price
              www.donnasia.blogspot.com
The internet and Auction type
      pricing:




                                                    English auctions

                                                    Dutch auctions

                                                   Sealed-bid auctions
Source: Marketing Management, Kotler and Keller, 13th ed.
                       www.donnasia.blogspot.com
Price Adaptation Strategy

Geographical Pricing




           www.donnasia.blogspot.com
Discounts and Allowances




Prompt payment discount


                                              Seasonal Discount
                       Volume discount


                  www.donnasia.blogspot.com
Promotional Pricing




                                     Special-event pricing




Loss-leader Pricing                 Low-interest financing
                      www.donnasia.blogspot.com
Profits Before and After a
           Price Increase




Source: Marketing Management, Kotler and Keller, 13th ed.
                             www.donnasia.blogspot.com
Respond to Low-Cost rival by:

1. Maintaining price

2. Maintaining price and adding value

3. Reducing price

4. Increasing price and improving
  quality

5. Launching a low-price fighter line

            www.donnasia.blogspot.com
In summary:
Price is the only element in the marketing
                                                                               Competitor’s can also offer
mix that produces revenue                                                      attractive prices


                                               Survival and Profit




Price objectives

                                                                                           Maximize market share
     Products Cost (Variable/Fixed)




                   Deliver value to customers                        consumer psychology
                                                                                           Sensitivity to price
       Durability, reliability, excellent service                                               changes

                                    www.donnasia.blogspot.com
Chapter 14
Developing Pricing
Strategies and Programs


               Donna Sia
              May 11, 2012




         www.donnasia.blogspot.com

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Kotler Chapter 14 Developing Pricing Strategies and Programs

  • 1. DEVELOPING PRICING STRATEGIES AND PROGRAMS MARKMA Rhea G. Jardin May 11, 2012 www.donnasia.blogspot.com
  • 2. Outline 1. 6 Steps in Setting the Price 2. 4 Price-adaptation Strategies www.donnasia.blogspot.com
  • 3. What is Price? Price is : - the one element of the marketing mix that produces revenue - the amount paid for some goods or services www.donnasia.blogspot.com
  • 4. Concept 1: 6 Steps in Setting the Price Selecting the Determining Estimating pricing objective demand costs Price objective Demand Costs Selecting the Selecting Analyze competitors’ pricing method costs, prices, and offers final price Final Pricing price method Competitors www.donnasia.blogspot.com
  • 5. Concept 1: 1. Selecting the pricing objective Selecting the pricing objective Price objective Survival (B/E) Maximize profit Maximize market share Product leadership Maximize market skimming www.donnasia.blogspot.com
  • 6. Concept 1: 2. Determining Demand Selecting the Determining pricing objective demand Price objective Demand Surveys Demand elasticity Statistical analysis Price experiments www.donnasia.blogspot.com
  • 7. Concept 1: 3. Estimating costs Selecting the Determining Estimating pricing objective demand costs Price objective Demand Costs Learning curve Fixed and Variable Cost per unit of production www.donnasia.blogspot.com
  • 8. Concept 1: 4. Analyze competitors’ costs, prices and offers Selecting the Determining Estimating pricing objective demand costs Price objective Demand Costs Analyze competitors’ costs, prices, and offers Competitors Evaluate the competitors’ price and product value www.donnasia.blogspot.com
  • 9. Concept 1: 5. Selecting price method Selecting the Determining Estimating pricing objective demand costs Price objective Demand Costs Selecting Analyze competitors’ pricing method costs, prices, and offers Pricing method Competitors Price Perceived markup value Value pricing Target Going-rate ROI pricing Auction- Break- type pricing even point www.donnasia.blogspot.com
  • 10. Concept 1: 6. Selecting final price Selecting the Determining Estimating pricing objective demand costs Price objective Demand Costs Selecting the Selecting Analyze competitors’ costs, pricing method prices, and offers final price Final Pricing price method Competitors Gain & risk sharing High advertising Pricing policies Price fixing www.donnasia.blogspot.com
  • 11. Concept 1: Selecting the 6 Steps in Setting the Price Determining Estimating pricing objective demand costs Price objective Demand Costs Surveys Learning Demand curve Survival (B/E) Maximize profit elasticity Fixed and Variable Maximize market share Cost per Statistical unit of analysis Price Product experiments production leadership Maximize market skimming Selecting the Selecting Analyze competitors’ costs, pricing method prices, and offers final price Final Pricing price method Competitors Price Perceived markup value Evaluate the Gain & risk competitors’ sharing Value High pricing price and advertising product value Target Going-rate ROI pricing Pricing policies Auction- Break- Price fixing type pricing even point www.donnasia.blogspot.com
  • 12. Concept 2: 4 Price-adaptation strategies 1. Geographical pricing 2. Price discounts and allowances 3. Promotional pricing 4. Differentiated pricing www.donnasia.blogspot.com
  • 13. Concept 2: 1. Geographical pricing Barter Compensation deal Direct exchange of goods Payment in products and cash Buyback arrangement Offset Payment in form of products manufactured by the supplied Receives payment in cash but agrees to equipment and cash spend some of the money in the products of that country www.donnasia.blogspot.com
  • 14. Concept 2: 2. Price discounts and allowances Cash discount Quantity discount Discounts given to cash, Discounts given to those early or prompt payments who buy large volumes Seasonal discount Discounts given to products or services that are out of season Trade discount Allowances Discounts given by Discounts given to gain manufacturers to resellers reseller participation in special programs www.donnasia.blogspot.com
  • 15. Concept 2: 3. Promotional pricing Special-event pricing Longer payment terms Low-interest financing Cash rebates Warranties and service contracts www.donnasia.blogspot.com
  • 16. Concept 2: 4. Differentiated pricing Price discrimination - selling a product at two or more prices Customer-segment pricing - different customer groups pay different prices for the same product or service Product-form pricing - different versions of the product are priced differently, but not proportionately to their costs Image pricing - the same product are priced at two different levels based on image differences www.donnasia.blogspot.com
  • 17. Concept 2: 4. Differentiated pricing Channel pricing - a product is priced depending on where it was purchase (fine restaurant, fast-food chain, or vending machine) Location pricing - same product is priced differently at different locations even though the cost is the same Time pricing - prices are varied by season, day, or hour (weekend vs weekdays, “early bird” customers) www.donnasia.blogspot.com
  • 18. DEVELOPING PRICING STRATEGIES AND PROGRAMS MARKMA Rhea G. Jardin May 11, 2012 www.donnasia.blogspot.com
  • 19. DEVELOPING PRICING STRATEGIES AND PROGRAMS Shelle Caiga MBA Standard May 11, 2012 www.donnasia.blogspot.com
  • 20. Outline: Developing Pricing Strategies and Programs I. Consumer Psychology and Pricing II. Steps in Setting Price III. Learning what Price Adaptation is all about. IV. Promotional Pricing Tactics V. Differentiated Pricing VI. Increasing Prices VII. Brand Leader Responses To Competitive Price Cuts www.donnasia.blogspot.com
  • 21. How do consumers process & evaluate prices? process prices evaluate www.donnasia.blogspot.com
  • 22. CONSUMER PSYCHOLOGY and PRICING REFERENCE PRICES PRICE-QUALITY INFERENCES PRICE ENDINGS PRICE CUES www.donnasia.blogspot.com
  • 23. Definition of Terms: CONSUMER PSYCHOLOGY: provides opportunities to examine issues such as what factors are most important… when people decide to purchase a particular item how customers determine the value of a service and whether or not television & magazine advertisements can convince a reluctant consumer to try a new product for the 1st time. PRICING: is the process of determining what a company will receive in exchange for its products www.donnasia.blogspot.com
  • 24. REFERENCE PRICES… is a strategy in which a product is sold at a price just below its main competing brand. is one component of psychological pricing – sellers consider the psychology of prices & not simply the economics. are prices that buyers carry in their minds and refer to when looking at a given product. www.donnasia.blogspot.com
  • 25. PRICE CUES When to use… Customers purchase item infrequently Customers are new Product designs vary over time Prices vary seasonally Quality or sizes vary across stores www.donnasia.blogspot.com
  • 26. How should a company set prices for products or services? STEPS: 1) Select the PRICE OBJECTIVE 2) Determine DEMAND 3) Estimate COSTS 4) Analyze competitor PRICE MIX 5) Select PRICING METHOD 6) Select FINAL PRICE www.donnasia.blogspot.com
  • 27. I. SELECT THE PRICE OBJECTIVE  Survival  Maximum current profit  Maximum market share  Maximum market skimming  Product – quality leadership www.donnasia.blogspot.com
  • 28. II. DETERMINE DEMAND  Price sensitivity  Estimating demand curves  Price elasticity of demand www.donnasia.blogspot.com
  • 29. III. ESTIMATE COSTS  Types of Costs  Accumulated Production  Activity – based Cost Accounting  Target Costing www.donnasia.blogspot.com
  • 30. IV. ANALYZE COMPETITOR PRICE MIX  Identify nearest price competitors  Take competitor’s features and prices into account  Make decision to charge more, the same or less than competitors  Monitor competitors’ reaction to your pricing strategy www.donnasia.blogspot.com
  • 31. V. SELECT PRICING METHOD  Mark up Pricing  Target-return pricing  Perceived-value pricing  Value pricing  Going-rate pricing  Auction-type pricing www.donnasia.blogspot.com
  • 32. VI. SELECT THE FINAL PRICE  Impact of other marketing activities  Company pricing policies  Gain-and-risk sharing pricing  Impact of price on other parties www.donnasia.blogspot.com
  • 33. PRICE-ADAPTATION STRATEGIES GEOGRAPHICAL PRICING DISCOUNTS / ALLOWANCES PROMOTIONAL PRICING DIFFERENTIATED PRICING www.donnasia.blogspot.com
  • 34. PRICE-ADAPTATION STRATEGIES COUNTERTRADE  Barter  Compensation deal  Buyback arrangement  Offset www.donnasia.blogspot.com
  • 35. PRICE-ADAPTATION STRATEGIES DISCOUNTS / ALLOWANCES  Cash Discount  Seasonal Discount  Quantity Discount  Allowance  Functional Discount www.donnasia.blogspot.com
  • 36. PROMOTIONAL PRICING TACTICS  Loss-leader pricing  Longer payment terms  Special-event pricing  Warranties & service contracts  Low-interest financing  Cash Rebates  Psychological discounting www.donnasia.blogspot.com
  • 37. DIFFERENTIATED PRICING & PRICE DISCRIMINATION  Customer-segment pricing  Channel pricing  Product-form pricing  Location pricing  Image pricing  Time pricing  Yield pricing www.donnasia.blogspot.com
  • 38. INCREASING PRICES  Delayed quotation pricing  Escalator clauses  Unbundling  Reduction of discounts www.donnasia.blogspot.com
  • 39. BRAND LEADER RESPONSES TO COMPETITIVE PRICE CUTS  Maintain price  Maintain price & add value  Reduce price  Increase price & improve quality Launch a low-price fighter line www.donnasia.blogspot.com
  • 40. DEVELOPING PRICING STRATEGIES AND PROGRAMS Shelle Caiga MBA Standard May 11, 2012 www.donnasia.blogspot.com
  • 41. Chapter 14 Developing Pricing Strategies and Programs Donna Sia May 11, 2012 www.donnasia.blogspot.com
  • 42. OUTLINE: When setting effective pricing policy a company 1. Follows six pricing procedures 2. Selects a pricing structure that reflects various situations 3. Chooses what price adaptation strategy to use 4. Examine the effect of price changes 5. Responds to competitors price challenge www.donnasia.blogspot.com
  • 43. Price is the only element in the marketing mix that produces revenue; the others produce cost. www.donnasia.blogspot.com
  • 44. Consumers use common price references. Fair price Typical Price Lower-bound Last Price Paid www.donnasia.blogspot.com
  • 45. They may also refer to: Competitor’s Price Usual Discounted Price Expected Future Price www.donnasia.blogspot.com
  • 46. Companies follow 6 steps when setting prices. 1 Select the price objective 2 Determine demand 3 Estimate costs 4 Analyze competitor price mix 5 Select pricing method 6 Select final price www.donnasia.blogspot.com
  • 47. In selecting price objectives, companies must look at Maximum Maximum Survival current profit market share Maximum market skimming Product-quality leadership www.donnasia.blogspot.com
  • 48. Demand can be determined by examining: Price Estimating Price Elasticity Sensitivity Demand of Demand Curves www.donnasia.blogspot.com
  • 49. Changes in price affect consumer demand: Source: Marketing Management, Kotler and Keller, 13th ed. www.donnasia.blogspot.com
  • 50. Customers are likely to be less sensitive to price changes when: product is more distinctive less aware of substitutes expenditure is a cannot easily compare the smaller part of quality of substitutes buyer’s total income www.donnasia.blogspot.com
  • 51. Customers are likely to be less sensitive to price changes when: small compared to the total cost Part of the cost is paid of the end product by another party used with previously purchased assets www.donnasia.blogspot.com
  • 52. Customers are likely to be less sensitive to price changes when: assumed to have high quality cannot store the product and prestige www.donnasia.blogspot.com
  • 53. Costs can either be fixed or variable process Fixed Cost Variable Cost output www.donnasia.blogspot.com
  • 54. The sum of variable and fixed cost for any given level of production is the total cost www.donnasia.blogspot.com
  • 55. As production accumulates average cost decreases Source: Marketing Management, Kotler and Keller, 13th ed. www.donnasia.blogspot.com
  • 56. To arrive at target cost, first determine target given product’s appeal price and desired and competitor’s price function Then: Target Selling Price = $ 9.90 Less Profit Margin = $ 3.40 Target Cost = $ P 6.50 www.donnasia.blogspot.com
  • 57. Different pricing methods can be used in varying situations Markup pricing Target-return pricing Perceived-value pricing Value pricing Going-rate pricing Auction-type pricing www.donnasia.blogspot.com
  • 58. Markup Pricing is just adding a standard mark-up to the product’s cost. Variable cost per unit $10.00 Fixed Cost $ 300,000.00 Expected Unit Sales 50,000 units Unit cost= variable cost + fixed cost unit sales = $10.00+ $ 300,000.00 50,000 = $16.00 Desired Mark Up= 20% Selling Price= Unit Cost = $16.00 = $20 (1- desired return) (1-0.20) www.donnasia.blogspot.com
  • 59. Target-return pricing is used by companies who need to make a fair return on investment Desired ROI = 20% or € 200,000 Target-return on price = unit cost + desired return x investment capital unit sales = $16.00 + 0.20 x $1,000,000.00 = $20.00 50,000 www.donnasia.blogspot.com
  • 60. Break-even analysis is used to determine target return price and break-even volume Source: Marketing Management, Kotler and Keller, 13th ed. www.donnasia.blogspot.com
  • 61. Perceived Value Pricing $ 90,000 tractor’s price = competitor’s price $ 7,000 superior durability $ 6,000 superior reliability $ 5,000 superior service $ 2,000 longer warranty $ 110,000 superior value - 10,000 discount $ 100,000 final price www.donnasia.blogspot.com
  • 62. The internet and Auction type pricing: English auctions Dutch auctions Sealed-bid auctions Source: Marketing Management, Kotler and Keller, 13th ed. www.donnasia.blogspot.com
  • 63. Price Adaptation Strategy Geographical Pricing www.donnasia.blogspot.com
  • 64. Discounts and Allowances Prompt payment discount Seasonal Discount Volume discount www.donnasia.blogspot.com
  • 65. Promotional Pricing Special-event pricing Loss-leader Pricing Low-interest financing www.donnasia.blogspot.com
  • 66. Profits Before and After a Price Increase Source: Marketing Management, Kotler and Keller, 13th ed. www.donnasia.blogspot.com
  • 67. Respond to Low-Cost rival by: 1. Maintaining price 2. Maintaining price and adding value 3. Reducing price 4. Increasing price and improving quality 5. Launching a low-price fighter line www.donnasia.blogspot.com
  • 68. In summary: Price is the only element in the marketing Competitor’s can also offer mix that produces revenue attractive prices Survival and Profit Price objectives Maximize market share Products Cost (Variable/Fixed) Deliver value to customers consumer psychology Sensitivity to price Durability, reliability, excellent service changes www.donnasia.blogspot.com
  • 69. Chapter 14 Developing Pricing Strategies and Programs Donna Sia May 11, 2012 www.donnasia.blogspot.com

Hinweis der Redaktion

  1. Fixed Cost or overhead cost are costs that do not vary with production level or sales revenue.Variable cost vary directly with level of production.
  2. Total cost consist of the sum of the fixed and variable costs for any given level of production.
  3. It refers to the gain a company experiences in producing a product over a period of time. Workers learn shortcuts, materials flow more smoothly, and procurement costs fall. The result is that average cost falls with accumulated production experience. This decline in the average cost with accumulated production experience is called the experience curve or learning curve. Average cost is the cost per unit at a level of production given total costhttp://design-marketing-dictionary.blogspot.com/2009/09/accumulated-production.html
  4. Also used for season items, specialty items, slower-moving items, items with high storage and handling cost, demand-inelastic (drugs)
  5. The firm determines the price that would yield its target rate of return on investment (ROI).Example 15 % to 20% ROI-does not consider other scenarios- if item will not sell at 50,000-manufacturers should consider different prices and their impact on sales volume-Find ways to decrease fixed costs and variable costs to lower break even volume
  6. There is always a segment of buyers who care only about the priceDeliver more value than the competitor and demonstrate this to prospective buyers