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The Pricing in B2B marketing

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The Pricing in B2B marketing Powered By Docstoc
					 Strategic element of Marketing Mix
 Indication of value or worth of
  something
 Without, transactions could not take
  place
     Value Based vs. Cost Based Pricing

 Value Based Pricing - difficult to establish
 Cost Based Pricing - easy and often
  mistakenly used
 Costs important in determining profit
  levels
 Beyond this, cost has little to do with
  price
Suppliers creatively                             Exhibit 10-1
combine components of
the total offering that   Elements of the
contribute to value for      Offering:
specific customers.          Product
Components will vary
depending on specific        Service
                                            The customer perceives
customer needs and the        Image         price as a cost in its
customer’s cost
                            Availability    offering. While some
structure.
                                            customers will be able to
                             Quantity       directly fund purchases,
                             Evaluated      others will require
                                            financing assistance (GE
                               Price        Credit Corporation
 Value                                      finances customer
 Activities                                 purchases). Other
                                            customers may require JIT
Value Value
                                            delivery while others may
Enabling Creating
                                            find value in the brand or
                                            image of a particular
                                            supplier, particularly if
                                            that image can add value
                                            to the final product (Intel
                                            Inside).
 Pricepaid/value exchanged at
  purchase
 Location convenience
 Handling and storage costs for
  customer
 Inventory financing/holding costs
 Environmental impact/disposal cost
                                                           Exhibit 10-4
               “A” has more value; customer chooses “A”
$ Equivalent
               though “B” has more total benefits
   Value
                                         Total
                Total                   Benefit
               Benefit                     s
                  s
                                                     Evaluated
                            Evaluated                Price
                            Price




     Value
                             Value




               Offering A               Offering B
                                                             Exhibit 10-5

$ Equivalent                                                Customer view –
   Value                                                    Maximum
                          Competitor’s                      worth of A
                           Price for B
                                                             Maximum
                                              Acceptable     Price per
                                              Price Range    Unit for A
           Cost

                                                              Minimum
                                                              Price per
                                                              Unit for A



               Attributable    Competitor’s   Offering A
               cost per unit   Offering B
               Offering A
Meet Following Four Criteria


Resultant           Realized




                   Forward
Avoidable          Looking
                 Incremental
   Costs that result from the decision
   Actual costs incurred
   Costs that will be incurred after the
    next units of product sold when the
    decision is implemented
   Costs that would not be incurred if the
    decision were not made to launch the
    offering
 Difference between ongoing attributable
  costs and ongoing attributable revenue
 Represents portion of revenue that
  contributes to:
    o Fixed Costs
    o Indirect Costs
    o Profit
 $
           Original
$10,000    Price

           Original
$7,000     Profit                     New Price
                                      $6500                Minimum Price –
          Allocated                                        $6000
$6,000    Cost of Mgr’s
          Salary—                                          Below $6000, you
                                    Contribution           lose more $ with
          “unavoidable”
                                    to Cover               each additional unit
           Attributable              Mgr’s Salary          sold
           Costs


              Price Cut “A” -- this is still OK Price Cut “B”
                                           Exhibit 10-7


Price   Demand        Supply




  P1


                               Elasticity at P1Q1
                               (Slope of demand
                               curve)
                 Q1
                                             Quantity
 Demand levels differ at different levels
  of Price
 Changes in Price yield reaction from
  customers
 Changes in Price yield reaction from
  competitors
 Achieving Target Level of Profitability
 Building Good-Will or Relationships: in
  a market with certain customers
 Penetration of a New Market or
  Segment
 Maximizing Profit for a New Product
 Keeping Competitors Out of an Existing
  Customer Base
 Winning Business of New, Important
  Customer
 Penetrating a New Account
 Reducing Inventory Levels
 Keeping Business of Disgruntled
  Customers
 Encourage Customer Trial
 Encourage Purchase of Complementary
  Products
 Pricing is situational
 Customer perceptions of value change
 Different market segments attracted at
  different stages in life cycle
 Competitive environment changes
 Role of offering in both marketer’s and
  customer’s organization will change
Skimming: Charging relatively high prices
  that take advantage of early adopters’
  strong desire for the product.

Penetration: Charging relatively low prices
  to entice as many buyers as possible into
  the early market.
Skimming
 Perception must reflect high price
 Market is inelastic
 Sustainable market advantage
 Competitive market entry blocked
 Production levels profitable at lower volumes
Penetration
 Market somewhat elastic
 Low price acts as barrier
 Economies of scale are necessary
 Bundling
 Discounts and Allowances
 Competitive Bidding
 Initiating Price Changes
                                                Exhibit 10-10

  Cost       Bid     Profit   Probability of   Expected

                              Winning Bid       Profit

$20,000   $20,000     $0            .2                   $0

$20,000   $22,000   $2,000          .5           $1,000

$20,000   $24,000   $4,000          .7           $2,800

$20,000   $26,000   $6,000          .5           $3,000

$20,000   $28,000   $8,000          .4           $3,200

$20,000   $30,000   $10,000         .3           $3,000

$20,000   $32,000   $12,000         .2           $2,400
Expected Profit at a Given Price
  o ØE(PF) = PW(Pr) x PF(Pr)
Where:
  o ØE(PF) = Expected profit
  o ØPW(Pr) = Probability of winning the
    bid at price Pr
  o ØPF(Pr) = Profit at price Pr
        Effect of an Industry
         Increase in Costs
                                Exhibit 10-11

Price
                    S2    S1




   P2

   P1




               Q2    Q1           Quantity
                                                      Exhibit 10-12


Situation:             Stand Alone            Balanced Between
                       Transaction            Transaction and
                                              Relationship
Effective Bargaining   Competitive; Problem   Problem Solving;
Styles                 Solving                Compromising

Effective Approach     Use of Leverage        Seek Common Interest
   Preparation                             Exhibit 10-13
     › Data Collection and Analysis
     › Determination of Negotiation Strategy
   Information Exchange
     › Elicit Information not yet obtained
     › Test Hypothesis about nature of situation
   Engage in Negotiation
     › Opening
     › Discussion positions
     › Concessions
     › Closing
   Obtain Comitment
 Who has the authority to make final
  decisions?
 What are the bargaining styles of
  participants in bargain decision?
 Is bargain perceived as transaction,
  relationship or both?
 What evaluated price range is customer
  expecting?
   Time Compression

   Hyper Competition

   Internet

				
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posted:12/30/2012
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