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Pricing strategy for marketing by mstahiri

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Global Marketing, pricing strategy, Marketing Environment, Business-to-Business Marketing, Nonprofit Marketing, Integrated Marketing Communications, Direct Marketing, Marketing Channels, Marketing Information, Customer Satisfaction, Strategic Marketing Planning Process, Sales Force Management, Article Marketing

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									     Pricing Strategies
     Pricing Strategies                          objectives
1.   Compare the alternative pricing strategies and explain when each
     strategy is most appropriate?
2.   Describe how prices are quoted?
3.   Identify the various pricing policy decisions that marketers must
4.   Relate price to consumer perceptions of quality?
5.   Contrast competitive bidding and negotiated prices?
6.   Explain the importance of transfer pricing?
7.   Compare the three alternative global pricing strategies?
8.   Relate the concepts of cannibalization, bundle pricing, and bots to
     online pricing strategies?
• “Price represents the amount of income that has to be
  given up in exchange for the
• package of benefits to be derived from the product”.
• Too high a price and the manager does not get the sales.
• Too low a price and there is not enough revenue. so
 two ways: 1- Adding total cost direct and indirect but its must be
   affordable. 2- current level of price being paid in the market
   (competitive) have to analyse .
• As with most activities in any organisation there will be
  stated policies underpinning the day-to-day activities which
  are taking place.
  “Policies are set and agreed at the higher levels of
  management and then passed down to the relevant
  personnel for adoption and action”

Pricing policies can be established in three ways:
• Cost-orientated (the costs involved in manufacturing the
  product and then adds on a percentage of the cost as a mark-up in order
  to set the price)

• Demand-orientated (High demand means high prices – low
  demand means low prices)

• Competitor-orientated (pricing is usually found where a
  group of organisations is selling the same product i.e. petrol, finance, etc.
  Customers are happy to pay and accepted the product as the “market
  price”. Individual firm cannot increase the price and decrease,
  consequently, loss of customer and loss of revenue. )
Influences on Pricing Decisions

                                COMPANY MARKET
    COMPETITORS                         STANCE

                  price              MANAGEMENT
 DISTRIBUTORS                          CULTURE


     COSTS                         CUSTOMERS

                  Political &
                Pricing Strategies
• Skimming pricing strategy: “involves the use of a high
  price relative to competitive offerings”
   – Often used by marketers of high-end products
   – Also by firms introducing a distinctive good with little or no
   – Allows firms to control demand during the introductory
     stages of a products life cycle
   – Can be used as a tool for segmenting a product’s market on
     a price basis
Price Reductions to Increase Market
             Price - Quality Strategies
             Higher                      Lower
            Premium               Good-Value
            Strategy               Strategy

           Overcharging            Economy
             Strategy              Strategy
      Types of pricing strategy
• Penetration pricing strategy: involves the use
  of a relatively low entry price as compared
  with competitive offerings; based on the
  theory that this initial low price will help
  secure market acceptance
• Everyday low pricing (EDLP): Pricing strategy
  of continuously offering low prices rather than
  relying on such short term price cuts as cents-
  off coupons, rebates, and special sales
     Competitive Pricing Strategies
• Competitive pricing Strategy: reduces
  emphasis on price as a competitive variable by
  pricing goods at the general level of
• Firms focus their own marketing efforts on the
  product, distribution and promotion elements
  of the marketing mix
     New Product Pricing Strategies
     Market Skimming                 Market Penetration
> Setting a High Price for a   >   Setting a Low Price for a
  New Product to Maximize          New Product in Order to
  Revenues from the                Attract a Large Number of
  Target Market.                   Buyers.
> Results in Fewer, More       > Results in a Larger Market
  Profitable Sales.              Share.
        Product Mix Pricing Strategies
                                Product Line Pricing
                  Setting Price Steps Between Product Line Items
                                  i.e. $299, $399
                              Optional-Product Pricing
                     Pricing Optional or Accessory Products
                           Sold With The Main Product
                                 i.e. Car Options
 Product                      Captive-Product Pricing
    Mix                Pricing Products That Must Be Used
                               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. Lumber Mills, Zoos
                               Product-Bundle Pricing
                    Pricing Bundles Of Products Sold Together
                      i.e. Season Tickets, Computer Makers
            Price Quotations
• List prices: Established prices normally
  quoted to potential buyers

• Market price: Price that an intermediary or
  final consumer pays for a product after
  subtracting any discounts, rebates, or
  allowances from the list price
      Reductions from List Price
– Cash discount: price reduction offered to a consumer,
  industrial user, or marketing intermediary in return for
  prompt payment of a bill

   • 2/10 net 30, a common cash discount notation, allows consumers
     to subtract 2 percent from the amount due if payment is made
     within 10 days
                        Price Adjustment Strategies

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

   Cash Discount                                       Customer

 Quantity Discount                                    Product Form

Functional Discount                                     Location

 Seasonal Discount                                       Time

 Trade-In Allowance
                   Trade Discounts:
• payment to a channel member or buyer for performing marketing
  functions; also known as a functional discount.
                  Quantity discount
• price reduction granted for a large-volume purchase
   – Justified on the grounds that large orders reduce selling
     expenses, storage, and transportation costs
   – Cumulative quantity discounts reduce prices in amounts
     determined by purchases over stated time periods
   – Non-cumulative quantity discounts provide one-time
     reductions in the list price

   – Trade-in: credit allowance given for a used item when a new
     item is purchased
   – Promotional allowance: advertising or promotional funds
     provided by a manufacturer to other channel members in an
     attempt to integrate the promotional strategy within the channel

• Rebates: refund for a portion of the purchase price,
  usually granted by the product’s manufacturer
        Geographic Considerations
– FOB (free on board) plant or FOB origin: Price quotation that
  does not include shipping charges. Buyer pays all freight
  charges to transport the product from the manufacturer

– Freight absorption: system for handling transportation costs
  under which the buyer may deduct shipping expenses from the
  costs of goods
      Geographic Considerations
– Uniform-delivered price: system for handling transportation
  costs under which all buyers are quoted with the same
  price, including transportation expenses
– Zone pricing: system for handling transportation costs
  under which the market is divided into geographic regions
  and a different price is set in each region
– Basing-point system: system for handling transportation
  costs in which the buyer’s costs included the factory price
  plus freight charges from the basing-point city nearest the
  buyer. Seeks to equalize competition between distant
                     Pricing Policies
Corporate strategy                        Financial strategy

                      Strategic pricing

                        Elements of
                       marketing mix
                        Pricing Policies
• develop pricing strategies for each of the main markets. Presupposes
   – main market identification
   – collection of data
       • a) customers / customer values
       • b) price sensitivities
       • c) costs                                analyse the data
       • d) competition                          to:
       • e) reputation                               a) inform corporate
       • f) risks                                    developments
                                                     b) inform pricing
       • g) government policies                      strategy development
       • h) product life cycle stag                  and hence financial
  Pricing Policies and specific pricing
• Pricing policy: general guidelines based on pricing
  objectives and intended for use in specific pricing decisions

• Psychological pricing: pricing policy based on the belief
  that certain prices or price ranges make a good or service
  more appealing than others to buyers
                    Pricing Policies
• Odd pricing: pricing policy based on the belief that a price
  ending with and odd number just below a round number is more
• Unit pricing: pricing policy in which prices are stated in terms
  of a recognized unit of measurement or a standard numerical
• Price Flexibility: pricing policy that permits variable prices for
  goods and services
• Product-line pricing: practice of marketing different lines of
  merchandise at a limited number of prices
                  Pricing Policies
• Promotional pricing: pricing policy in which a lower than
  normal price is used as a temporary ingredient in the
  marketing strategy
   – Loss leader: product offered to consumers at less than
     cost to attract them to stores in the hope that they will
     buy other merchandise at regular prices
      • Leader pricing
                    Pricing Policies
• Price-Quality Relationships
   – Without other cues, price serves as an important
     indicator of a product’s quality to buyers
   – Customers often view price as an indicator of a
     product’s overall quality and may be willing to pay a
     higher price
    Competitive Bidding and Negotiated Prices

• Many purchases are made through competitive bidding, a
  process in which potential suppliers and manufacturers are
  invited to quote prices on proposed purchases or contracts

• Negotiated Prices Online
   – Buyers and sellers can communicate and negotiate
     prices online
           The Transfer Price Dilemma
• Transfer price: cost assessed when a product is moved from one profit
  center to another
• Profit center: any part of an organization to which revenue and
  controllable costs can be assigned
 Global Considerations and Online Pricing
• International markets are subject to external influences
  such as regulatory limitations, trade restrictions,
  competitor’s actions, economic events, and the global
  status of the industry.

• The effect the exchange rate can have on international
  trade can be significant. It is important that pricing of
  products take exchange rates into account.
Traditional Global Pricing Strategies
– Standard Worldwide: Pricing strategy in which
  exporters set standard worldwide prices for products,
  regardless of their target markets
– Dual Pricing: Pricing strategy that distinguishes
  between domestic and export sales, and maintains a
  distinct set of prices for each
– Market Differentiated: Flexible pricing strategy that
  sets prices according to local marketplace and
  economic conditions
    Characteristics Of Online Pricing
   – Cannibalization: Loss of sales of an existing product
     due to competition from a new product in the same line
   – Shopping Bots: Search engines which act as
     comparison shopping agents

• Bundle pricing: Offering two or more complementary
  products and selling them for a single price
                Break even analysis
• Breakeven analysis brings together the various types of
  cost that are involved in making products, then relates
  them to the quantity that must be sold – and paid for – to
  cover all the costs that are involved and leave the company
  with no debts for that product. The cost as:
• Raw material
• Overhead
• labour
                   Break even analysis
The break even point
occurs where total
revenue equals to total
• G. Lancaster; R. Pearson; P. Reynolds, (1989); “Marketing” ISNB
  O850978548 Charless Letts (Scotland)
• M.R cizinkota; R. Dickson; H. Lindergren, (2000), “Marketing Best
  Practice“ ISBN: 0-03-021109-3
• P. Kotler and G. Armstrong, (1999); “Principle OF Marketing” Eighth
  Edition ISBN, 22-65767-898 Prentice Hall
• Wikipidia last pull (2008)
• ABE “ Marketing notes for higher diploma, (2008)

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