Lt9--PricingStragsforASPAC

8/2/2019 Lt9--PricingStragsforASPAC

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Pricing Strategies for

the Asia Pacific

Asia-Pacific Marketing Federation

Certified Professional MarketerCopyright

Marketing Institute of Singapore


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Outline

Introduction

Pricing strategies and process

Reactions to price changes

Impact on discounting

Price wars

Yield management


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Introduction

We need to set price when we have anew product, or when we enter a new

market with an existing productHow?

Need to decide what position you want

your product to be in (see quality-pricerelationshipnext slide)


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Price-Quality Strategies

Philip Kotler identified 9 price-qualitystrategies

PremiumHigh

Value

Super

Value

OverCharging

MidValue

GoodValue

Rip-offFalse

EconomyEconomy

High Quality

Low Quality

High Price Low Price


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Pricing Process

1. Set Pricing Objectives (see next slide)2. Analyze demand

3. Draw conclusions from competitiveintelligence

4. Select pricing strategy appropriate tothe political, social, legal andeconomical environment

5. Determine specific prices


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Possible Pricing Objectives

Profit objectives e.g.

Targeted profit return

Volume objectives e.g.

Dollar or unit sales growth

Market share growth

Other objectives e.g.

Match competitors price

Non-price competition


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Demand Analysis

Measure the impact of price change ontotal revenue

Predicts unit sales volume and totalrevenue for various price levels

Different customers have different price

sensitivities and needs


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Impact of Cost on Pricing

Strategy

Fixed and variable costs

Full-Cost Pricing

Markup pricing, break-even pricing andrate-of-return pricing

Variable-cost pricing

3 types of relationshipsRatio of fixed costs to variable costs

Economies of scales

Cost structure


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Discussion: Impact of Ethics on

Pricing

How should you price if your product isa life-saving drug?

What are the ethical considerations?Customers have no choice

Need to pay for the research

When cheaper options doesnt work

Competition decides


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Information Needed for

Price Change

Customers ability & willingness to buy;customer lifestyle; benefits sought;

characteristics of the product e.g.When the kopi tiams, local coffee shops in

Singapore tried to raise the price of a cup ofcoffee by 10 cents in March 1994, the grass-

root reaction was stormy

When StarbucksCoffee and Spinellis raisedtheir prices in the beginning of 1998 by a

hefty 20%, nobody raised an eyelit


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Information Needed for

Price Change (contd)

Need to know everything about thecompetitors

How would competitors react to our pricechange? (see following slide)

In obtaining competitors information,

remember the value of the information


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New-Product Pricing

Strategies

1. Skimming pricing Charging a high price initially and reducing

the price over time

Commonly used when introducing new &innovative products in the ASPAC region

2. Penetration pricing Charging a low price when entering the

market to capture market share

Used when competitors are closing in with

similar or better products


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New-Product Pricing

Strategies (contd)

3. Intermediate pricing Pricing somewhere in between the

skimming strategy and the penetrationstrategy


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Pricing Strategies for Established

Products

Three strategic alternatives:

Maintain the price if you are the leader e.g.

In 1999, Shell in Singapore maintained its price whenother petrol companies engaged in a price war untiltowards the end of the engagement

Reduce the price e.g.

SIA regularly reduce its airfare in anticipation of thedeveloping market situations

Increase the price

during inflation, or if demand is expected to increase

or if you wish to harvest e.g. in Indonesia


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Price-Flexibility Strategy

One-price policysetting one fixedprice for all markets

Flexible-price policysetting differentprices in different markets based on:

Geographic Location,

Time of delivery, orThe complexity of the product


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How much flexibility in price?

Depends on the Demand-Cost gap and

the influence of competition, social,legal and ethical considerations

Example: Life-saving drugs


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Product-Line Pricing

When pricing products in differentlines, must take cross-elasticities of

demand across the set of productsinto consideration

The idea is to maximize the profits of

the entire organization rather thanthat of a single product or a single line


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Leasing Strategy

Leasing is more common forindustrial goods e.g.

Singapore Airlines sold many of theiraircraft and lease them back for theiroperations

There is a growing trend towardleasing consumer goods as well

e.g. Leasing of office equipment


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Reactions to Price Change

Customers are more sensitive toprice changes if the products cost a

lot and/or are bought frequentlyCompetitors may see each of your

price change as a fresh challenge and

react according to its self-interest atthe time. Need to estimate eachclose competitors likely reaction


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Responding to Competitors

Price Change If competitors lower price for

homogenous products

Try augmenting the product

If it doesnt work or if it is not likely to

work, then meet the price cut head-on


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Responding to Competitors

Price Change (contd)

If competitors raise priceIn a homogeneous market, follow if you

think the whole market is likely to followIn a non-homogeneous market, evaluate

The reason for the competitor pricechange

If the price increase is temporaryThe effect on your market share & profit

The likely response(s) from the othercompetitors


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When a Market Leader is

Being Attacked on Price

Options available:

Maintain price

Raise perceived quality

Match competitors price

Increase price and improve quality


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Impact of Discounting on

Brand Equity

Why discount?

Problems emerging with discounts

The value equation (V=Q/P)


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Price War

Price wars are frequent in industries where

Cost differentiation opportunities exists

Capital is intensive and products arehomogeneous

Examples: Airfares, ISP, Petrol, & Loans

e.g.The Home Loan price war in Singapore in

Sept 2000 involving OUB, UOB, DBS amongothers


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Yield Management

What is it?

Yield management goals

Industries that benefited from yieldmanagement

Common variables

Documents

Lt9--PricingStragsforASPAC