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					        Pricing
The Puzzle of the Next Century
         Pricing Puzzle
“ A price is not merely a function of costs
              and margins… ”



     Costs + Margins = PRICE
         Pricing Puzzle
“ A price is not merely a function of costs
              and margins… ”


     Costs + Margins = PRICE


    “…it is an expression of VALUE ”
                   Pricing Puzzle
              Minimize      Optimize        Maximize
              Costs + Margins = PRICE
                                VALUE

   Production costs                      Product performance
   Indirect costs                          • Usefulness & Quality
   Advertising costs                     Image / Aspirations
                                            • Brand Equity
   Distribution costs
                                          Availability
   Manufacturer’s margin                   • Distribution Strategy
   Distributor’s margin                  Service
   Seller’s margin                         • Before/During & After sales
                Pricing Puzzle

4 P’s                  4 C’s
   PRODUCT               CUSTOMER VALUE
   PRICE                 COST
   PLACE                 CONVENIENCE
   PROMOTION             COMMUNICATION
                Pricing Puzzle

4 P’s                  4 C’s
   PRODUCT               CUSTOMER VALUE
   PRICE                 COST
   PLACE                 CONVENIENCE
   PROMOTION             COMMUNICATION
                    A Secret Pie

   Impact of a 1 % price increase on profits

    –   Coca-Cola     6,4   %
    –   Nestlé       17,5   %
    –   Ford         26,0   %
    –   Philips      28,7   %
                Pricing Puzzle

4 P’s                    4 C’s
   PRODUCT                 CUSTOMER VALUE
   PRICE                   COST
   PLACE                   CONVENIENCE
   PROMOTION               COMMUNICATION


                 Seller’s Dilemma
                Pricing Puzzle
4 P’s                         4 C’s
   PRODUCT                      CUSTOMER VALUE
   PRICE                        COST
   PLACE                        CONVENIENCE
   PROMOTION                    COMMUNICATION


           “ Tomorrow’s winner companies will
          be those who offer distinct products at
             comparatively low market prices ”
             Key = Differentiation
    The key to drive value is to offer relevant and
          distinctive product differentiation
   Physical Differences
    – Features, performance, durability, conformance, design, etc…
   Availability Differences
    – Distribution channels ; Stores, mail-order, internet, etc…
   Service Differences
    – Delivery, installation, training, consulting, maintenance, etc…
   Price Differences
    – Price positioning (Very high / High / Medium / Low / Very Low)
   Image Differences
    – Symbols, atmosphere, events, media, etc…
               Key = Differentiation
      Differentiation : Examples
   Physical Differences
    – Levi’s Engineered Jeans (Ergonomic construction, durability, style)
   Availability Differences
    – Dell Computer’s customized production, Volkswagen “e.lupo”
   Service Differences
    – Acıbadem Hospital – Mother Care Division, Nissan “5-year Warranty”
   Image Differences
    – Audi vs Mercedes, DuPont (Innovation Leader)
               Key = Differentiation
      Differentiating commodities…
   Perdue Chicken (USA)
    – Guaranteed tenderness (30 % market-share, 10 % premium pricing)
   Flora Drinking Water (Turkey – Sabancı Holding)
    – Service, packaging, attributes, operation
   Starbuck’s Coffee (USA)
    – Atmosphere, standard service


                Everything can be differentiated !...
                 Pricing Decisions
   INTERNAL FACTORS              EXTERNAL FACTORS
    – Marketing Objectives         – Market
       » Positioning                  »   Pure Competition
       » Target Group                 »   Monopolistic Competition
    – Marketing Mix Strategy          »   Oligopolistic Competition
       » 4 P’s                        »   Pure Monopoly
    – Costs                        – Demand
       » Fixed & Variable             » Elastic / Inelastic
    – Management Approach          – Competition
       » Responsibility               » Competitors’ offers
       » Perspective                  » Competitiors’ reactions
                                   – Economy
                                      » Buying power
                                   – Government Influence
                                      » Laws & Regulations
           Pricing Approaches
   Cost-Based Pricing
    – Cost-Plus Pricing
        » Product Cost + Standard Mark-Up = Price
    – BE Analysis & Target Profit Pricing
        » A necessary survival tool
   Buyer-Based Pricing
    – Perceived Value
        » Consider buyers’ perceptions of value NOT the cost
   Competition-Based Pricing
    – Basing prices on competitors’ prices
        » Premium Pricing
        » Going-Rate Pricing
        » Discount Pricing
               Pricing Strategies
   PRICING a SINGLE NEW PRODUCT

    – Market-Skimming
        » Highest possible price to skim small but profitable segments

    – Penetration Pricing
        » Lowest possible price to penetrate the market quickly
                    Pricing Strategies
   PRODUCT-MIX PRICING
    – Product-Line Pricing
       » Establishing product lines at different price points
              Volkswagen (Polo, Bora, Golf, Passat)
    – Optional-Product Pricing
       » Offering to sell optional/accessory products along with the main product
              BMW & Mercedes
    – Captive-Product Pricing
       » Offering products, which must be used with the main product
              Gillette razor blades
    – By-Product Pricing
       » Valued by-products positively affect pricing
              Petroleum by-products
    – Product-Bundle Pricing
       » Several products combined and offered at a reduced price
              Season tickets, New-year packages of hotels
             Price Adjustments
   Adjust basic prices to account for various customer
    differences and changing situations

    – Discounts & Allowances
        » To attract/reward certain customer respones
    – Discriminatory Pricing
        » To allow for differences in customers, products & locations
    – Promotional Pricing
        » Varying price reductions offered depending on shopping
          period, item purchased, etc...
      Price Adjustment Strategies
   DISCOUNTS & ALLOWANCES
    – Cash Discounts
       » Attract early payments
              A 15% reduction applied to those customers who buy on cash
    – Quantity Discounts
       » Price reduction to buyers who buy large quantities
    – Functional Discounts
       » Differentiating prices among trade channel members
              Different mark-ups for OLSs and corners
    – Seasonal Discounts
       » Price reduction to buyers who buy out-of-season
    – Allowances
       » Trade-in Allowances
              Bring the old, take away the new...
       » Promotional Allowances
              Discounts provided in return for participating in special programs
      Price Adjustment Strategies
   DISCRIMINATORY PRICING
    – Customer-segment Pricing
        » Different customers pay different prices
               Disneyland Adult vs Child pricing
    – Product-form Pricing
        » Different versions of the product are priced differently, regardless of
          the cost
               An additional feature with a slight cost might justify a fat price premium
    – Location Pricing
        » Different locations are priced differently, regardless of the cost
               Business Class seats
    – Time Pricing
        » Prices differ from month to month, day to day, even hour to hour
               Prime-time/Off-prime-time pricing of advertising time
      Price Adjustment Strategies
   PROMOTIONAL PRICING
    – Loss Leaders
        » Attract consumers in store, sell other items as well
               Hyper-Markets (Carrefour, Gima, Praktiker, Migros, etc...)
    – Special-event Pricing
        » Offering discounts at times of special events
               Valentine’s Day, New year, Şişli Municipality’s discount campaign
    – Cash Rebates
        » Discounts offered to consumers for purchases made in a limited period
          of time
               Dockers campaign (20 % off)
    – Simple Cash Discounts
        » Over-the-counter to support revenues OR to defend against competition
          Psychology of Price
   Consumer’s Mind-set (Black-Box)

    – BE CAREFUL !!!
       » Price vs Quality Image
             CK perfume
             Rolex watch
             Pharmaceutical items

       » Perceptions
             30.000.000 TL vs 29.950.000 TL
        One Final Word

“ A product is not a product unless it sells.
  Otherwise, it’s just a museum piece…”

                             Ted Levitt

				
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