Class 25 and 26 Slides

8/13/2019 Class 25 and 26 Slides

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Marketing Mix - Pricing Strategy

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Session Outlines

Pricing Decisions Strategic Pricing Decisions Profit Equation Price as an Indicator of Quality / Value Setting the Price The six steps Four Main Pricing Strategies Price - Quality Strategies Pricing Methods Auction Pricing

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PRICING DECISIONS Pricing is an art, a game played for high stakes; for

marketing strategists, it is the moment of truth. All ofmarketing comes to focus in the pricing decision.

Pricing decisions determine the types of customers and competitors afirm attracts

A single pricing error can effectively nullify all other marketing mix

activities

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Strategic Pricing Decisions

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Adjust price to meet variations in demandand cost across segments, channels etc

Set strategic pricing objective

Estimate demand, price elasticityof demand and perceived value

Determine costs and their relationship to volume

Examine competitors prices and costs

Select a method for calculating price

Set a price level

Influences/Constraints:

InternalMarketing ObjectivesPositioningMarketing StrategiesCosts

Strengths/WeaknessesCompany characteristics

ExternalConsumer attitudesConsumer demandCompetitionResellersCultureEconomyLegislation


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Marketing Mix

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Product Price

PromotionPlace

RevenueProducer

Cost

Cost

Cost

PROFIT EQUATION Price affects the quantity sold and hence profit because it directly

affects both revenues and costs:

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Profit = TotalRevenueTotalCosts

TotalRevenue

UnitVariableCosts

UnitPrice

FixedCosts +

QuantitySold Profit ( )[ ]= ( ) QuantitySold

TotalCosts


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PricePrice

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Money Charged for a Product or ServiceMoney Charged for a Product or Service

Generates RevenueGenerates Revenue

Easy to ChangeEasy to Change

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Many NamesMany Names

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Why Price?

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PRICING CONSIDERATIONSPrice as an Indicator of Quality / Value

For some offerings, price influences consumers perception ofquality and ultimately value

Price affects consumer perceptions of prestige: As the pricefor an item increases, the demand for it rises

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Setting the Price

The six steps in the process

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Select Final Price

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Price Method

Competitor Analysis

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3

4

5

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Estimate Costs

Determine DemandPricing Objective

Pricing Objectives

QuantitativeTarget marginTarget ROI

Target cash flowTarget revenueTarget volumeTarget share

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QualitativeMarket imagePerceived fairness

Competitive parityCompetitive edgeEntry deterrenceSurvival


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Four Main Pricing Strategies

A

A

B

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Market SkimmingMarket Skimming

Applies to new, distinctiveApplies to new, distinctiveproducts, early in the PLCproducts, early in the PLC


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Two Pricing MistakesTwo Pricing Mistakes

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Reducing Price Too SoonReducing Price Too Soon

Pricing Based on Costinstead of Customer ValuePricing Based on Costinstead of Customer Value

Price Wars

Involves successive price cutting by competitors toincrease or maintain their unit sales or market share If competitors match the lower price, market share, sales, and profit gains

could be lost

The overall price level resulting from the lower price benefits none of thecompetitors

Coke vs. Pepsi price war in Karachi Marketers should consider price cutting only when one or more

conditions exist: The firm has a cost or technological advantage over its competitors The price cut is confined to specific products or customers and not across-

the-board18


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INDUSTRY CHARACTERISTICS AND

THE RISK OF PRICE WARS

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Higher Lower

IndustryCharacteristics

Offering type

Market growth rate

Price visibility to competitors

Buyer price sensitivity

Overall industry cost trend

Industry capacity utilization

Number of competitors

Undifferentiated

Stable/Decreasing

High

High

Declining

Low

Many

Differentiated

Increasing

Low

Low

Stable

High

Few

Risk Level

Pricing Methods

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15% 20%

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Pricing Methods

( . . )

. .

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Pricing Methods

$$$ $ $ $$ 22


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Pricing Cues / Psychological pricing ,

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. B

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00 ,

99 .

. A , 8%.

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Product Mix Pricing

. . /

. . / / /

. .

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Product Mix Pricing

. .

/

. . A

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Price Adjustments

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Auction Pricing

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English auction(ascending bids)

Dutch auction(descending bids)

Sealed-bid auction

Session Take Away

A

:

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Documents

Class 25 and 26 Slides