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Part Five: Pricing Strategy

( Chapter11-Charpter12)

Part Five: Pricing Strategy

( Chapter11-Charpter12)

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• Price :The amount of money charged for a product or service,or the sum of the values that consumers exchange for the benefits of having or using the product or service.

• Dynamic pricing: Charging different prices depending on individual customers and situations.

Price Defined (P.345)

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Factors affecting price decisions (P.348)

• Internal factors

Marketing objectives;Marketing mix strategy;Costs;Organizational consideration

Internal factors

Marketing objectives;Marketing mix strategy;Costs;Organizational consideration

External factorsNature of the market and demand; Competitors; Other environment factors(economy, reseller, government

External factorsNature of the market and demand; Competitors; Other environment factors(economy, reseller, government

Pricing decision

Pricing decision

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• Type of Cost :

Fixed costFixed cost Variable

cost

Variable cost

Total cost

Total cost

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• Pricing in different types of markets(P.379)

Pure competitionPure competition

Oligopolisticcompetition

Oligopolisticcompetition

Monopolisticcompetition

Monopolisticcompetition

Pure monopolyPure monopoly

PricingPricing

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• Demand curve (P.354)

• • P1 P1

• Q2 Q1 Q2 Q1

• A. Inelastic demand B. Elastic demand

pric

e P2 P2

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• Price elasticity of demand (P.382)

%Change in Quantity Demanded

Price Elasticity =

of demand %Change in price

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General pricing approaches (P.357)

ProductCosts

ProductCosts

Consumerperceptions

of value

Consumerperceptions

of value

Competitors’ prices and otherInternal and external factors

Competitors’ prices and otherInternal and external factors

Price floorNo profits below

this price

Price ceilingNo demand above

this price

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Cost -Based Pricing（成本导向定价）

• Cost - plus pricing （成本加成定价） (P.357)

e.g:

Variable cost $10

Fixed cost $300,000

Expected unit sales 50,000

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Fixed CostsUnit cost = Variable Cost + Unit Sales 300000 = $10 + = $16 50000

Unit Cost $16Markup Price = = =$20

(1-- Desired return on sales) 1--0.2

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Breakeven Volume Pricing (target profit pricing)（目标利润定价） (P.358)

• $ • 1200 Total Revenue

• 1000 Target Profit($20000)

• 800 Total Cost

• 600

• 400• 200 Fixed Cost

• 0

• 10000 20000 30000 40000 50000 Q

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Breakeven volume and profits at different prices

• (1)

price

(2)Unit

demand

needed

(3)

Expected unit

demand

(4)

Total

Revenue

(1)*(3)

(5)

Total

cost

(6)

Profit

(4)-(5)

$14

16

18

20

22

75000

50000

37500

30000

25000

71000

67000

60000

42000

23000

$994000

1072000

1080000

840000

506000

1100000

970000

900000

720000

530000

-$32000

102000

180000

120000

-24000

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• Value- Based Pricing （认知价值定价） Cost based pricing

Value-based pricing

Product Product Cost Cost Price Price valuevalue

Customer Customer Value Value Price Price Cost Cost

Customer Customer

Product Product

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Competition -Based Pricing（竞争导向定价）

• BID PROFIT ASSUMED EXPECTED

• PROFIT • $9,500 $ 100 81% $81• 10000 600 36% 216• 10500 1100 9% 99• 11000 1600 1% 16

•

Going-ratepricing

Going-ratepricing

Sealed-bidpricing

Sealed-bidpricing

随行就市定价 密封投标定价

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New-product Pricing Strategies (P.371)

Market-SkimmingPricing

Market-SkimmingPricing

Market-PenetrationPricing

Market-PenetrationPricing

1 、 High quality and image ， enough buyer ；2 、 Cost is not high forsmaller volume ；3 、 Competitors hardlyenter the market 。

1 、 High quality and image ， enough buyer ；2 、 Cost is not high forsmaller volume ；3 、 Competitors hardlyenter the market 。

1 、 Market is high price sensitive ；2 、 Cost is falling as sales volume increase ；3 、 Low price can keep out the competition 。

1 、 Market is high price sensitive ；2 、 Cost is falling as sales volume increase ；3 、 Low price can keep out the competition 。

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Product-Mix Pricing Strategies

STRATEGY DESCRIPTIONProduct line pricing Setting price steps between product （系列定价） line items 。Optional-product pricing Pricing optional or accessory products （附件定价） sold with the main product 。Captive-product pricing Pricing products that must be used （诱饵定价） with the main product 。By-product pricing Pricing low-value by-products to get （副产品定价） rid of them 。Product-bundle pricing Pricing bundles of products sold （捆绑定价） together 。

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Price-Adjustment Strategies

STRATEGY DESCRIPTION

Discount and allowancepricing

Segmented pricing

Psychological pricingPromotional pricing

Value pricing

Geographical pricing

Reducing prices to reward customerresponses such as paying early orpromoting the product 。Adjust prices to allow for differences in customer ， products ， or locations 。Adjust price for psychological effect 。Temporarily reducing prices to increase short-run sales 。Adjust prices to offer the right combination at a fair price 。Adjust prices to account for location 。

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Price Changes

• Initiating Price Cuts;

• Initiating Price Increases;

• Buyer Reactions to Price Changes;

• Competitor Reactions to Price Changes.

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Assessing and responding to competition’s price

changes ( P.386)

Has competitorcut price?

Has competitorcut price?

Will low price negatively affect out

market share & profit?

Will low price negatively affect out

market share & profit?

Can/should effectiveaction be taken?

Can/should effectiveaction be taken?

Hold current price;Continue to monitorCompetitor’s price

Hold current price;Continue to monitorCompetitor’s price

Reduce price Reduce price

Raise perceivedquality

Raise perceivedquality

Improve quality& increase price

Improve quality& increase price

Launch low-price“fighting brand”

Launch low-price“fighting brand”

No

No

No

Yes

Yes

Yes