Pricing Products - Pricing Considerations _ Strategies

Document Sample
Pricing Products - Pricing Considerations _ Strategies Powered By Docstoc
					    Pricing Products:
Pricing Considerations &
        Strategies


    Prof. Rushen Chahal
     Factors to Consider When
           Setting Prices
Price is the Amount of Money Charged for a Product or
                       Service.

                    Internal Factors




                       Pricing
                      Decisions




                   External Factors
Internal Factors Affecting
    Pricing Decisions
                Marketing
                Objectives

               Marketing-Mix
                 Strategy


                   Costs

               Organizational
               Considerations
Marketing Objectives that Affect
       Pricing Decisions
                               Survival
                 Low Prices to Cover Variable Costs and
                 Some Fixed Costs to Stay in Business.

                    Current Profit Maximization
                   Choose the Price that Produces the
   Marketing    Maximum Current Profit, Cash Flow or ROI.

  Objectives         Market Share Leadership
                    Low as Possible Prices to Become
                        the Market Share Leader.

                    Product Quality Leadership
                      High Prices to Cover Higher
                     Performance Quality and R & D.
Marketing Mix Variables that Affect
Pricing Decisions
Companies Will Consider Price Along With All the Other
Marketing-Mix Elements When Developing the Marketing
      Program. Price Must be Coordinated With:
                     Product Design




                    Marketing-Mix
  Non-Price           Strategy            Distribution
   Factors




                       Promotion
Types of Cost Factors that
 Affect Pricing Decisions
       Fixed Costs                  Variable Costs
       (Overhead)
      Costs that don’t              Costs that do vary
     vary with sales or              directly with the
     production levels.            level of production.
     Executive Salaries               Raw materials
           Rent




                     Total Costs
    Sum of the Fixed and Variable Costs for a Given
                  Level of Production
External Factors Affecting Pricing
Decisions

                 Market and
                  Demand

             Competitors’ Costs,
              Prices, and Offers

            Other External Factors
              Economic Conditions
                 Reseller Needs
              Government Actions
                Social Concerns
       Market and Demand Factors that
           Affect Pricing Decisions
       Pure Competition                  Monopolistic Competition
  Many Buyers and Sellers Who            Many Buyers and Sellers Who
  Have Little Effect on the Price.       Trade Over a Range of Prices.




             Pricing in Different Types of Markets




   Oligopolistic Competition                   Pure Monopoly
Few Sellers Who Are Sensitive to Each
                                                 Single Seller
 Other’s Pricing/ Marketing Strategies
Price Elasticity of Demand
                                      A. Inelastic Demand -
                                      Demand Hardly Changes With
                                      a Small Change in Price.
  Price

          P2
          P1



                              Q2 Q1
               Quantity Demanded per Period
                                      B. Elastic Demand -
                                      Demand Changes Greatly With
                                      a Small Change in Price.
  Price




          P’2
          P’1



                       Q2                   Q1
                Quantity Demanded per Period
Major Considerations in
Setting Prices
     No                                           No
   Possible                    Consumer         Possible
   Profit at     Product      Perceptions      Demand at
  This Price      Costs         of Value       This Price



                               Selling       Profits   High
 Low             Existing
       Factory                  and         through    Price
 Price           Products
                             Promoting      Volume



                 Competitors’ Price and
                   Other External &
                   Internal Factors
What is Cost-Plus Pricing and Why
          is it Popular?
Adding a Standard Markup to the Cost of the Product.



      Sellers Are More                  Minimizes
       Certain About                      Price
        Costs Than                     Competition
          Demand

                          Perceived
                         Fairness to
                         Both Buyers
                         and Sellers
       Breakeven Analysis or
        Target Profit Pricing
                             Tries to Determine the Price at Which a Firm Will
                                 Break Even or Make a Target Profit
Cost in Dollars (millions)




                                                                         Total Revenue

                                                                                   Target Profit
                              12                                                    ($2 million)
                              10                                                   Total Cost
                               8
                               6                                                   Fixed Cost
                               4
                               2
                               0

                                     200       400       600      800         1,000
                                     Sales Volume in Units (thousands)
Cost-Based Vs. Value-Based Pricing
 Cost-Based Pricing      Value-Based Pricing

      Product                Customer



       Cost                    Value



       Price                   Price



       Value                   Cost



    Customers                 Product
Competition-Based Pricing

                 Setting Prices




                  Going-Rate
        Company Sets Prices Based on What
           Competitors Are Charging.




      ?            Sealed-Bid
           Company Sets Prices Based on
       ?    What They Think Competitors
                   Will Charge.
     New-Product Pricing Strategies
           Price - Quality Strategies
                             Price
                 Higher                   Lower

  Higher        Premium                 Good-Value
                Strategy                 Strategy
Quality




              Overcharging              Economy
   Lower        Strategy                 Strategy
Setting Initial Product Prices


   Market Skimming          Market Penetration

  > Setting a High Price   > Setting a Low Price
    for a New Product       for a New Product in
    to Skim Maximum         Order to Attract a
    Revenues from the       Large Number of
    Target Market.          Buyers.
  > Results in Fewer,      > Results in a Larger
    More Profitable          Market Share.
    Sales.
                           > Wal-mart
  > Intel’s $1,000 Chip
Product Mix Pricing Strategies
                      Product Line Pricing
                         Setting Price Steps
                     Between Product Line Items
                  i.e. Lawnmowers at $299 & $399
                   Optional-Product Pricing
               Pricing Optional or Accessory Products
                      Sold With The Main Product
                 i.e. Car Options such as a CD player
 Product            Captive-Product Pricing
   Mix             Pricing Products That Must Be
                 Used Along With The Main Product
 Pricing          i.e. Razor Blades, Film, Software
Strategies            By-Product Pricing
                  Pricing Low-Value By-Products To
                           Get Rid of Them
              i.e. From Chemicals, Lumber Mills, Zoos
                    Product-Bundle Pricing
                      Bundles Of Products Sold
                     Together at a Reduced Price
               i.e. Season Tickets, Computer Makers
 Price-Adjustment Strategies
                   Price Adjustment Strategies

 Discount & Allowance                        Segmented
 Reducing Prices to Reward              Adjusting Prices to Allow
Customer Responses such as            for Differences in Customers,
 Paying Early or Promoting              Products, and Locations.
       the Product.


       Cash Discount                                Customer

      Quantity Discount                            Product-Form

     Functional Discount                             Location

     Seasonal Discount                                Time

     Trade-In Allowance    Promotional Allowance
Price-Adjustment Strategies

                        • Adjusting  Prices for
Psychological Pricing     Psychological Effect.
                        • Price Used as a Quality
                          Indicator.
                        • Reference Prices i.e.
                          Clothing.


                        • Temporarily  Reducing Prices
 Promotional Pricing      to Increase Short-Run Sales.
                        • i.e. Loss Leaders, for
                          Special-Events, Cash Rebates
Price-Adjustment Strategies

                          • Adjusting Prices to Account
                            for the Geographical Location
  Geographical Pricing      of Customers.
                          • i.e. FOB-Origin, Uniform-
                            Delivered, Zone Pricing, etc.


                          • Adjusting Prices for
                            International Markets.
  International Pricing   • Price Depends on Costs,
                            Consumers, Economic
                            Conditions & Other Factors.
Initiating and Responding to
         Price Changes
      Competitor
       Reactions               Initiating
           to                  Price Cuts
     Price Changes


                      Price
                     Changes

 Buyer Reactions                  Initiating
       to                           Price
      Price                      Increases
    Changes
Assessing & Responding to
Competitor Price Changes
  Has Competitor Cut       No    Hold Current Price;
        Price?                   Continue to Monitor
                                 Competitor’s Price.

              Yes

    Will Lower Price
  Negatively Affect Our    No
 Market Share & Profits?

                                         Reduce Price
               Yes
                           No           Raise Perceived
  Can/ Should Effective                     Quality
    Action be Taken?
                           Yes          Improve Quality
                                        & Increase Price

                                       Launch Low-Price
                                       “Fighting Brand”
Public Policy and Pricing
 Public Policy on Pricing Centers on Three Potentially
             Damaging Pricing Practices.


         Price
         Fixing



                       Price
                   Discrimination



                                    Deceptive
                                     Pricing

				
DOCUMENT INFO
Shared By:
Categories:
Stats:
views:24
posted:2/15/2012
language:
pages:23
Description: Prof. Rushen's notes for MBA and BBA students