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DEVELOPING PRICING STRATEGIES AND PROGRAMS
When should a company initiate price change?
INITIATING PRICE CUTS
Why are price cuts required?
Due to excess plant capacity To dominate market
TRAPS due to price cutting strategy
. competitors respond by lowering their prices, triggering a price war
Price war trap
Fragile market trap- a low price buys market share but not market loyalty
Lower quality trap- consumers assume price is low
INITIATING PRICE INCREASES
DO YOU KNOW ?
If a company’s profit margin is 3% of sales,
a 1% price increase will increase
profits by 33% if the volume is unaffected.
Why prices increase?
Cost inflation (increase) Over demand
How To increase prices?
Delayed quotation Escalator clauses- Unbundling Reduction of discounts
Alternative approaches that avoid increasing prices
Shrinking the amount of product
Substituting less-expensive ingredients
Many candy bar companies substituted synthetic chocolate for the real
chocolate to fight cocoa price increase
Reducing product features
Reducing product services
Such as installation or free delivery
Using less expensive packaging
Creating new economy brands
TATA introduced Titan for high class people and sonata for middle class
people
LET’S RECAP
Initiating price cutsInitiating price riseAlternatives to price rise