Pricing Strategy

W. Rofianto

The Internet Changes the Pricing Environment -

By Providing Information

• Failure to revise price to capitalize on market changes

• Setting price independently of the rest of the marketing mix

• Failure to vary price by product item, market segment, distribution channels, and purchase occasion

Common Pricing Mistakes

Price-quality inferences

Consumer Psychology and Pricing

Price ending

1. Select the price objective

2. Determine demand

3. Estimate costs

4. Analyze competitor price mix

5. Select pricing method

6. Select final price

Steps in Setting Price

• Survival

• Maximum current profit

• Maximum market share

• Maximum market skimming

• Product-quality leadership

Step 1: Selecting the Pricing Objective

• Price sensitivity

• Estimate demand curves

• Price elasticity of demand

Step 2: Determining Demand

• Buyers are less aware of substitutes

• Buyers cannot easily compare the quality of substitutes

• Expenditure is a smaller part of buyer’s total income

• Expenditure is small compared to the total cost

• Part of the cost is paid by another party

• Buyers cannot store the product

Factors Leading to Less Price Sensitivity

• The product is more distinctive• Product is used with previously purchased assets

• Product is assumed to have high quality and prestige

• Types of costs

• Level of Production

• Accumulated production

• Target costing

Step 3: Estimating Costs

Step 4: Analyzing Competitor’s Costs

• Markup pricing

• Target-return pricing

• Perceived-value pricing

• Value pricing

• Going-rate pricing

• Auction-type pricing

Step 5: Selecting a Pricing Method

Break-Even Chart

English

Dutch

Sealed-Bid

• Impact of other marketing activities

• Impact of price on other parties

• Gain-and-risk sharing pricing

• Company pricing policies

Step 6: Selecting the Final Price

Brands with average relative quality but high relative advertising budgets

could charge premium prices.Consumers were willing to pay higher prices for known rather than for unknown products.

Tiers in Pricing

Geographical Pricing

simPATI Flash Ultima - Volume Based

• Discount

• Quantity discount

• Functional discount

• Seasonal discount

• Allowance

Price Discounts and Allowances

• Loss-leader pricing

• Special-event pricing

• Special customer pricing

• Cash rebates

• Low-interest financing

• Longer payment terms

• Warranties and service contracts

• Psychological discounting

Promotional Pricing Tactics

• Customer-segment pricing

• Product-form pricing

• Image pricing

• Channel pricing

• Location pricing

• Time pricing

• Yield pricing

Differentiated Pricing

• Low-quality trap

• Fragile-market-share trap

• Shallow-pockets trap

• Price-war trap

Traps in Price Cutting Strategies

• Shrinking the amount of product instead of raising the price.

• Substituting less-expensive materials or ingredients.

• Reducing or removing product features.

• Removing or reducing product services, such as installation or free delivery.

• Using less-expensive packaging material or larger package sizes.

• Reducing the number of sizes and models offered.

• Creating new economy brands.

Alternate approaches to avoid increasing prices

• Maintain price

• Maintain price and add value

• Reduce price

• Increase price and improve quality

• Launch a low-price fighter line

Brand Leader Responses to Competitive Price Cuts

rofianto@gmail.com