Description
covers pricing as one of the 4 P's of marketing in detail.
Pricing Strategy
While Product,Price,Personal selling , Promotion and Distribution all contribute towards sales volume, It is only Price which determines Profit for the product. ? Pricing is the most visible variable to the customer and is often considered by them as the most flexible variable for the marketers
?
Role of Pricing in Marketing mix
Pricing decisions within the company
? Pricing
decisions need to be handled with caution and care by people who are aware of the explosive nature of decision
4 C’s in Pricing
Customers - demand situations ? Company -cost / marketing objectives ? Channels ? Competition
?
Determinants of Price
(1) Product Quality - e.g. Maruti 800 vs. Altos (2) Service level - e.g. ICICI Bank vs. Dena Bank (3) Purchase conditions (Cash vs. Credit) - e.g. gasoline, automobile financing, etc. (4) Location and Transportation - e.g. Vegetables in wholesale markets vs. Local markets (5) Brand Image - e.g. Brooke Bond vs. Girnar Tea
The Importance of Pricing Decisions
Hyper-Competition on Price Penetration Pricing to build Installed Base Consumer Price Sensitivity
Price Concerns of Marketing Managers
Cost Transparency
? ? ? ?
Pricing
- absence of parameters for judging quality objectively - infrequent purchases - existence of wide qualities in product category - low involvement purchases - if the occasion puts emphasis on adaptive Customer considerations in criteria
Price expectations Fair / just prices Past prices Quality perceptions
– complicated by:
Unique value effect - customers are less price sensitive when they perceive the product provides unique benefits ; there are no acceptable substitutes ? Price quality effect - customers are less price sensitive when they perceive the product offers high quality , prestige , or exclusiveness
?
Buyer’s perceptions and preferences
Buyer’s awareness of and attitude toward alternatives
Substitute awareness effect - customers are less price sensitive when they are relatively unaware of competing brands or substitute products. ? Difficult comparison effect - customers are less price sensitive when it is difficult to objectively compare the quality or performance of alternative brands or substitutes
?
Estimated Demand
?
When pricing, a company must estimate demand for the product:
? Determine whether there is a price the market expects. ? Estimate sales volume at different prices.
?
Inverse demand: when an increase in price results in increased sales.
Estimated Demand
?
Expected price: the price that shows what customers think the product is worth.
? Pricing a product within the expected price range helps gain support from middlemen. ? It is possible to set a price too low, thereby losing sales.
Firms are usually concerned with achieving a certain level of earnings within some particular time frame. ? Since pricing influences the difference in cash flows or earnings streams for a company, Firms set financial goals .
?
Pricing w.r.t Financial needs
a goal of immediate earnings ? a goal of steady earnings ? a goal of high future earnings
?
Financial Goals
Types of Costs
Variable Costs
Fixed Costs
The Cost Determinant of Price
Deviate with changes in level of output
Do not deviate as level of output changes
Company Factors Affecting Pricing Decisions
Marketing Objectives
Marketing-Mix Strategy
Marketing Objectives That Affect Pricing Decisions
Survival
Low Prices to Cover Variable Costs and Some Fixed Costs to Stay in Business.
Current Profit Maximization
Marketing Objectives
Choose the Price that Produces the Maximum Current Profit, Cash Flow or ROI.
Market Share Leadership
Low as Possible Prices to Become the Market Share Leader.
Product Quality Leadership
High Prices to Cover Higher Performance Quality
Pricing related to market task situations
Convert
encouraging Brand switching with Competitive Prices
Increase purchase size
Marketing Tasks
prices to attract heavier individual usage,Variation in prices as per packs
Maintain current customers
prices as per value addition and ensuring repeat purchases.
Attract new customers
Penetration prices for initiating customer switch from substitutes
The Marketing Mix and Pricing Decisions
? Pricing
strategies must be determined in the context of the entire marketing strategy.
decisions must be coordinated with the other marketing mix elements.
? Price
Pricing – Constraints & Objectives
Need to influence Customers Distributors Competitors Internal company functions
Constraints
Market / Value orientation
Pricing Objectives
Financial Goals
Need to coordinate Costs Existing Product Line Govt.Legislations Competitive Goals
Pricing – Goals & Objectives
Price stability
Market / Value orientation
Social Responsibility Sellers reputation
Immediate earnings
Pricing Objectives
Financial Goals
Steady earnings
High future earnings
Competitive Goals
Convert Increase Attract Maintain
Situational Factors for Consideration in Price Setting
The business strategy and other components of the marketing mix . ? The extent to which the product is perceived to differ from competitive offerings in quality or level of customer service. ? Competitor’s cost and prices . ? The availability and prices of possible substitutes.
?
Influences and Constraints on Price Setting
? ? ? ? ? ?
SBU and marketing strategies Target market characteristics Product characteristics Competitor characteristics Company strengths and weaknesses Environmental influences -economic trends -legal restrictions
Pricing Policies - Areas
? Flexibility.
Policies should explain how flexible the company will be toward altering the price.
? Level
over the product life cycle. Price policies across the product life cycle must be developed. of discounts and allowances. Where, when, and to whom discounts and allowances are to be offered must be decided.
? Use
Establish pricing goals Estimate demand, costs, and profits Choose a price strategy Fine tune with pricing tactics
Steps in Setting the Right Price Results lead to the right price
Set strategic pricing objective 2. Estimate demand and price elasticity of demand Pricing strategy - Steps 3. Determine costs and their relation to volume 4. Examine competitors’ prices and costs 5. Select a method of calculating price 6. Set a price level 7. Adapt price structure to meet variations in demand and cost across geographic territories,market segments
1.
Pricing Objectives
? ? ?
?
?
Maximise sales growth and penetration. Maintain quality or service differentiation . Maximise current profit : skimming / harvesting. Survival. Social objectives.
Price Skimming
Basic Strategies for Setting Prices
Penetration Pricing
Status Quo Pricing
Choosing a Price Strategy
Inelastic Demand
Situations when Price Skimming is Successful
Superior Product Legal Protection of Product Technological Breakthrough Limited Production
Price Skimming
Common Pricing Strategies
Cost-plus Pricing: ? Used to be the most typical pricing practice. ? Problems?? - Ignores what the competition is doing; - Customer may not be able/willing to pay the price.
Common Pricing Strategies
Target Pricing: ? Fast becoming the practice in most industries; ? Approach is reverse to cost-up pricing - here you start with a price and then figure out your costs. ? Very demanding on the manufacturer to keep the costs down.
Price Skimming: ? Charging a high price in the introductory phase of the life-cycle; ? Why used?? (a) to recoup the R&D investment; (b) milk the customers with high reservation prices; ? Widely used for pioneering high-technology products, ? e.g. Sony Playstation, Panasonic DVD player, Phillips HDTV.
Common Pricing Strategies (contd.)
Common Pricing Strategies (contd.) Penetration Pricing:
Opposite to price skimming. Here you start with a low price to quickly build market share; ? May work well for me-too products or for pioneering products with low entry-barriers (e.g. no patent protection; low technology barriers); ? e.g. Palm III
?
Promotional Pricing (three approaches): (a) Reference Pricing: ? Before/After, Regular Price/Sale Price; ? The reference price has to be credible; ? Inflating the reference price is illegal but common. (b) Loss-Leader Pricing: ? Here the retailer deliberately takes losses on certain high-volume items (e.g. Best sellers, popular CDs or Videos, etc.) to attract customers to the site;
Common Pricing Strategies (contd.)
(c) Bait and Switch: ? Attract customers by offering an unbelievable low price on certain products and then claim that the products are sold out and persuade them to buy more expensive ones.
Common Pricing Strategies (contd.)
An Illegal Practice
Common Pricing Strategies (contd.) Psychological Pricing:
Odd Pricing: ? Practice of pricing products ending on oddnumbers, e.g. $41.59, $69.99. ? However, research has confirmed this effect only to a limited extent. Dynamic Pricing (soon to be the vogue) ? The practice of charging consumers idiosyncratic prices based on market conditions and buyer characteristics ? Pros and cons?
What is Price-Lining or Versioning?
?
The practice of offering different varieties of products at different price points. Examples: (a) (in 1985): IBM Pcjr., PC, XT, AT. (b) Sony, Aiwa (c) Hard-cover versus Paperback
What is Price-Lining or Versioning?
Benefits of a Price-Lining:
Segments buyers by their price consciousness (2) Something for everyone – buyers don’t feel left out (3) Creates a line logic (4) Introduces aspiration products or brands
(1)
Problems
Additional marketing costs (2) May dilute brand image (3) May dilute managerial focus (4) Customer confusion
(1)
doc_428587601.ppt
covers pricing as one of the 4 P's of marketing in detail.
Pricing Strategy
While Product,Price,Personal selling , Promotion and Distribution all contribute towards sales volume, It is only Price which determines Profit for the product. ? Pricing is the most visible variable to the customer and is often considered by them as the most flexible variable for the marketers
?
Role of Pricing in Marketing mix
Pricing decisions within the company
? Pricing
decisions need to be handled with caution and care by people who are aware of the explosive nature of decision
4 C’s in Pricing
Customers - demand situations ? Company -cost / marketing objectives ? Channels ? Competition
?
Determinants of Price
(1) Product Quality - e.g. Maruti 800 vs. Altos (2) Service level - e.g. ICICI Bank vs. Dena Bank (3) Purchase conditions (Cash vs. Credit) - e.g. gasoline, automobile financing, etc. (4) Location and Transportation - e.g. Vegetables in wholesale markets vs. Local markets (5) Brand Image - e.g. Brooke Bond vs. Girnar Tea
The Importance of Pricing Decisions
Hyper-Competition on Price Penetration Pricing to build Installed Base Consumer Price Sensitivity
Price Concerns of Marketing Managers
Cost Transparency
? ? ? ?
Pricing
- absence of parameters for judging quality objectively - infrequent purchases - existence of wide qualities in product category - low involvement purchases - if the occasion puts emphasis on adaptive Customer considerations in criteria
Price expectations Fair / just prices Past prices Quality perceptions
– complicated by:
Unique value effect - customers are less price sensitive when they perceive the product provides unique benefits ; there are no acceptable substitutes ? Price quality effect - customers are less price sensitive when they perceive the product offers high quality , prestige , or exclusiveness
?
Buyer’s perceptions and preferences
Buyer’s awareness of and attitude toward alternatives
Substitute awareness effect - customers are less price sensitive when they are relatively unaware of competing brands or substitute products. ? Difficult comparison effect - customers are less price sensitive when it is difficult to objectively compare the quality or performance of alternative brands or substitutes
?
Estimated Demand
?
When pricing, a company must estimate demand for the product:
? Determine whether there is a price the market expects. ? Estimate sales volume at different prices.
?
Inverse demand: when an increase in price results in increased sales.
Estimated Demand
?
Expected price: the price that shows what customers think the product is worth.
? Pricing a product within the expected price range helps gain support from middlemen. ? It is possible to set a price too low, thereby losing sales.
Firms are usually concerned with achieving a certain level of earnings within some particular time frame. ? Since pricing influences the difference in cash flows or earnings streams for a company, Firms set financial goals .
?
Pricing w.r.t Financial needs
a goal of immediate earnings ? a goal of steady earnings ? a goal of high future earnings
?
Financial Goals
Types of Costs
Variable Costs
Fixed Costs
The Cost Determinant of Price
Deviate with changes in level of output
Do not deviate as level of output changes
Company Factors Affecting Pricing Decisions
Marketing Objectives
Marketing-Mix Strategy
Marketing Objectives That Affect Pricing Decisions
Survival
Low Prices to Cover Variable Costs and Some Fixed Costs to Stay in Business.
Current Profit Maximization
Marketing Objectives
Choose the Price that Produces the Maximum Current Profit, Cash Flow or ROI.
Market Share Leadership
Low as Possible Prices to Become the Market Share Leader.
Product Quality Leadership
High Prices to Cover Higher Performance Quality
Pricing related to market task situations
Convert
encouraging Brand switching with Competitive Prices
Increase purchase size
Marketing Tasks
prices to attract heavier individual usage,Variation in prices as per packs
Maintain current customers
prices as per value addition and ensuring repeat purchases.
Attract new customers
Penetration prices for initiating customer switch from substitutes
The Marketing Mix and Pricing Decisions
? Pricing
strategies must be determined in the context of the entire marketing strategy.
decisions must be coordinated with the other marketing mix elements.
? Price
Pricing – Constraints & Objectives
Need to influence Customers Distributors Competitors Internal company functions
Constraints
Market / Value orientation
Pricing Objectives
Financial Goals
Need to coordinate Costs Existing Product Line Govt.Legislations Competitive Goals
Pricing – Goals & Objectives
Price stability
Market / Value orientation
Social Responsibility Sellers reputation
Immediate earnings
Pricing Objectives
Financial Goals
Steady earnings
High future earnings
Competitive Goals
Convert Increase Attract Maintain
Situational Factors for Consideration in Price Setting
The business strategy and other components of the marketing mix . ? The extent to which the product is perceived to differ from competitive offerings in quality or level of customer service. ? Competitor’s cost and prices . ? The availability and prices of possible substitutes.
?
Influences and Constraints on Price Setting
? ? ? ? ? ?
SBU and marketing strategies Target market characteristics Product characteristics Competitor characteristics Company strengths and weaknesses Environmental influences -economic trends -legal restrictions
Pricing Policies - Areas
? Flexibility.
Policies should explain how flexible the company will be toward altering the price.
? Level
over the product life cycle. Price policies across the product life cycle must be developed. of discounts and allowances. Where, when, and to whom discounts and allowances are to be offered must be decided.
? Use
Establish pricing goals Estimate demand, costs, and profits Choose a price strategy Fine tune with pricing tactics
Steps in Setting the Right Price Results lead to the right price
Set strategic pricing objective 2. Estimate demand and price elasticity of demand Pricing strategy - Steps 3. Determine costs and their relation to volume 4. Examine competitors’ prices and costs 5. Select a method of calculating price 6. Set a price level 7. Adapt price structure to meet variations in demand and cost across geographic territories,market segments
1.
Pricing Objectives
? ? ?
?
?
Maximise sales growth and penetration. Maintain quality or service differentiation . Maximise current profit : skimming / harvesting. Survival. Social objectives.
Price Skimming
Basic Strategies for Setting Prices
Penetration Pricing
Status Quo Pricing
Choosing a Price Strategy
Inelastic Demand
Situations when Price Skimming is Successful
Superior Product Legal Protection of Product Technological Breakthrough Limited Production
Price Skimming
Common Pricing Strategies
Cost-plus Pricing: ? Used to be the most typical pricing practice. ? Problems?? - Ignores what the competition is doing; - Customer may not be able/willing to pay the price.
Common Pricing Strategies
Target Pricing: ? Fast becoming the practice in most industries; ? Approach is reverse to cost-up pricing - here you start with a price and then figure out your costs. ? Very demanding on the manufacturer to keep the costs down.
Price Skimming: ? Charging a high price in the introductory phase of the life-cycle; ? Why used?? (a) to recoup the R&D investment; (b) milk the customers with high reservation prices; ? Widely used for pioneering high-technology products, ? e.g. Sony Playstation, Panasonic DVD player, Phillips HDTV.
Common Pricing Strategies (contd.)
Common Pricing Strategies (contd.) Penetration Pricing:
Opposite to price skimming. Here you start with a low price to quickly build market share; ? May work well for me-too products or for pioneering products with low entry-barriers (e.g. no patent protection; low technology barriers); ? e.g. Palm III
?
Promotional Pricing (three approaches): (a) Reference Pricing: ? Before/After, Regular Price/Sale Price; ? The reference price has to be credible; ? Inflating the reference price is illegal but common. (b) Loss-Leader Pricing: ? Here the retailer deliberately takes losses on certain high-volume items (e.g. Best sellers, popular CDs or Videos, etc.) to attract customers to the site;
Common Pricing Strategies (contd.)
(c) Bait and Switch: ? Attract customers by offering an unbelievable low price on certain products and then claim that the products are sold out and persuade them to buy more expensive ones.
Common Pricing Strategies (contd.)
An Illegal Practice
Common Pricing Strategies (contd.) Psychological Pricing:
Odd Pricing: ? Practice of pricing products ending on oddnumbers, e.g. $41.59, $69.99. ? However, research has confirmed this effect only to a limited extent. Dynamic Pricing (soon to be the vogue) ? The practice of charging consumers idiosyncratic prices based on market conditions and buyer characteristics ? Pros and cons?
What is Price-Lining or Versioning?
?
The practice of offering different varieties of products at different price points. Examples: (a) (in 1985): IBM Pcjr., PC, XT, AT. (b) Sony, Aiwa (c) Hard-cover versus Paperback
What is Price-Lining or Versioning?
Benefits of a Price-Lining:
Segments buyers by their price consciousness (2) Something for everyone – buyers don’t feel left out (3) Creates a line logic (4) Introduces aspiration products or brands
(1)
Problems
Additional marketing costs (2) May dilute brand image (3) May dilute managerial focus (4) Customer confusion
(1)
doc_428587601.ppt