pricin stratergy chngd

8/7/2019 pricin stratergy chngd

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Group 10

Developing pricing stratergy


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Price

y The amount of money charged for a product, or the sum of

the values that consumers exchange for the benefits of

having/using the product or service.


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y For the consumer, it is the total of values he/she gives up inexchange for the benefits ofhaving or using the product.

y Price is theonly element of the marketing mix thatproduces revenue for the seller.

All other elements represent costs.


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Considerations in SettingPrice


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Consumers pricing psychology

y Reference groups

y Price-quality inferences

y Priceques


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Steps in SettingPrice

1. Select the price objective

2. Determinedemand

3. Estimate costs

4. Analyze competitor price mix5. Select pricing method

6. Select final price


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Step 1: Selecting the Pricing Objectivey Survival

y Maximum current profit

y Maximum market share

y

Maximum market skimmingy Product-quality leadership

y Other objectives


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Step 2: Determining Demand

y Price sensitivity

y Estimatedemand curves

y Priceelasticity ofdemand


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Estimating demand curves

y Statistical analysis

y Priceexperiments

y surveys


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Price elasticity of demand


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Factors Leading to Less Price

Sensitivity

y The product is moredistinctive

y Buyers are less aware of substitutes

y Buyers cannot easily compare thequality of substitutes

y Theexpenditure is a smaller part of buyers total incomey Theexpenditure is small compared to the total cost of theend

product


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y Part of the cost is paid by another party

y The product is used with previously purchased assets

y The product is assumed to havehighquality and prestige

y Buyers cannot store the product


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Step 3: EstimatingCosts

y Types of costs

y Accumulated production

y Activity-based cost accounting

y Target costing


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Cost Terms and Production

y Fixed costs

y Variable costs

y Total costs

y Average costy Cost at different levels of production


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Cost Per Unit at Different Levels of

Production


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Cost Per Unit as a Function ofProduction

Experience


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Step 5: Selecting a Pricing Method

y Markup pricing

y Target-return pricing

y Perceived-value pricing

y Value pricingy Going-rate pricing

y Auction-type pricing


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y Markup pricing:

e.g.VC/unit: $10; FC: $300,000; Expected unit sales

50,000,

The unit cost = $10 + ($ 300,000/50,000) = $ 16,

Then markup price = $16/(1-0.2) = $20

yTarget Return pricingy Setting a selling price above the breakeven point, so that a desired

level of profit can be achieved.

y T-R price = UC+(desired return*invested capital)/US


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Breakeven chart


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y Perceived-value pricing: setting premium price for excellentservices, luxurious products etc.

y Value pricing: setting price with everyday low pricing at theretail level .

y Going-Rate pricing: the firm might charge more or less thanthe competitors.

y Auction-Type pricing:

English auctions

Dutch auctions

Sealed-bid auctions


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Step 6: Selecting the Final Price

y Impact of other marketing activities

y Company pricing policies

y Gain-and-risk sharing pricing

y Impact of price on other parties


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Initiating to Price Changes

y Companies face situations where they need to cut or

raise price

y Initiating Price Cuts: as a drive to dominate the market

through lower cost andexcess plant capacity.

y A price-cutting strategy involves possible traps:

a. Low quality trap

b. A low price buys market share but not market loyalty

c. Shallow pocket trap


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y Initiating PriceIncreases:

The major circumstance provoking price increases is cost

inflation.

y A price-increase strategy involves different impact onbuyers:

a. Delayed quotation pricing

b. Unbundlingc. Reduction ofdiscounts


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Responding to price changes

y Customers reaction:

customers often question the motivation behind price

changes.

y

BrandLeader Responses to CompetitivePrice CutsMaintain price

Maintain price and add value

Reduce price

Increase price and improvequality

Launch a low-price fighter line


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Price-Reaction Program for Meeting a Competitors Price

Cut

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