Description
Pricing strategies for products or services encompass three main ways to improve profits. These are that the business owner can cut costs or sell more, or find more profit with a better pricing strategy.
Pricing Strategies
Presented By
Doctor Tahir Javed
[email protected]
Pricing Strategies objectives 1. Compare the alternative pricing
2. 3. 4. 5. 6. 7.
strategies and explain when each strategy is most appropriate? Describe how prices are quoted? Identify the various pricing policy decisions that marketers must make? Relate price to consumer perceptions of quality? Contrast competitive bidding and negotiated prices? Explain the importance of transfer pricing? Compare the three alternative global
[email protected]
PRICING DEFINITION
BY CIM
• “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”. PRICING DECISION • Too high a price and the manager does not get the sales. • Too low a price and there is not enough revenue. so [email protected]
policies
• 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”
[email protected]
[email protected]
Pricing policies can be established in three ways:
policies
• 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) (High demand means high prices – low demand means low prices)
(pricing
• Demand-orientated
• Competitor-orientated
is usually found where a group of
Influences on Pricing Decisions
COMPANY OBJECTIVES NEW COMPETITORS
SUPPLIERS DISTRIBUTORS
pric e
EXISTING
COMPANY MARKET STANCE
MANAGEMENT CULTURE
COMPETITORS COSTS
CUSTOMERS
Political & legal decision
[email protected]
Pricing Strategies
• Skimming pricing strategy: strategy “involves the use of a high price relative to competitive offerings”
– Often used by marketers of highend products – Also by firms introducing a distinctive good with little or no competition – Allows firms to control demand [email protected] the introductory stages of a
Price Reductions to Increase Market Share
[email protected]
Price - Quality Strategies Price
Higher Premium Strategy Lower Good-Value Strategy Economy Strategy
Higher
Quality
r
Overcharging Lowe Strategy
[email protected]
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
[email protected]
•
reduces emphasis on price as a competitive variable by pricing goods at the general level of competitors • Firms focus their own marketing efforts on the product, distribution and promotion elements of the marketing mix
[email protected]
Competitive Pricing Strategies Competitive pricing Strategy:
New Product Pricing Strategies
Market Skimming Market Penetration
>Setting a High Price for a New Product to Maximize Revenues from the Target Market. >Results in Fewer, More Profitable
>
Setting a Low Price for a New Product in Order to Attract a Large Number of Buyers.
>Results in a Larger Market Share.
[email protected]
Product Mix Pricing Strategies
Product Line Pricing Optional-Product Pricing
Setting Price Steps Between Product Line Ite i.e. $299, $399 Pricing Optional or Accessory Products Sold With The Main Product i.e. Car Options
Captive-Product Pricing
Product Mix Pricing Strategies
Pricing Products That Must Be Used With The Main Product i.e. Razor Blades, Film, Software
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 [email protected]
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
[email protected]
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
[email protected]
Price Adjustment Strategies
Discount & Allowance Reducing Prices to Reward Customer Responses such as Paying Early or Promoting the Product. Cash Discount Quantity Discount Functional Discount Seasonal Discount Trade-In Allowance
[email protected]
Segmented Adjusting Prices to Allow for Differences in Custome Products, or Locations.
Customer Product Form Location Time
• payment to a channel member or buyer for performing marketing functions; also known as a functional discount.
Trade Discounts:
[email protected]
Quantity discount
• price reduction granted for a largevolume 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 [email protected]
Allowances
– 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 [email protected]
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
[email protected]
– Uniform-delivered price: system for
Geographic Considerations
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
[email protected]
Pricing Policies
Corporate strategy Strategic pricing policy Elements of marketing mix
[email protected]
Financial strategy
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 analyse the data • c) costs to: a) inform corporate • d) competition strategy • e) reputation developments b) inform pricing • f) risks strategy development • g) government policies and hence financial strategy • h) product life cycle stag
[email protected]
•
Pricing Policies and specific pricing decision 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 [email protected]
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 appealing • Unit pricing: pricing policy in which prices are stated in terms of a recognized unit of measurement or a standard numerical count • Price Flexibility: pricing policy that permits variable prices for goods and services [email protected] • Product-line pricing: practice of
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 [email protected]
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
[email protected]
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 [email protected]
The Transfer Price Dilemma
• Transfer price: price cost assessed when a product is moved from one profit center to another • Profit center: center any part of an organization to which revenue and controllable costs can be assigned
[email protected]
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 [email protected]
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 [email protected]
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 [email protected]
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 • [email protected]
Break even analysis
The break even point occurs where total revenue equals to total costs
[email protected]
References
• 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: 003-021109-3 • 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, [email protected]
doc_635883240.pdf
Pricing strategies for products or services encompass three main ways to improve profits. These are that the business owner can cut costs or sell more, or find more profit with a better pricing strategy.
Pricing Strategies
Presented By
Doctor Tahir Javed
[email protected]
Pricing Strategies objectives 1. Compare the alternative pricing
2. 3. 4. 5. 6. 7.
strategies and explain when each strategy is most appropriate? Describe how prices are quoted? Identify the various pricing policy decisions that marketers must make? Relate price to consumer perceptions of quality? Contrast competitive bidding and negotiated prices? Explain the importance of transfer pricing? Compare the three alternative global
[email protected]
PRICING DEFINITION
BY CIM
• “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”. PRICING DECISION • Too high a price and the manager does not get the sales. • Too low a price and there is not enough revenue. so [email protected]
policies
• 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”
[email protected]
[email protected]
Pricing policies can be established in three ways:
policies
• 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) (High demand means high prices – low demand means low prices)
(pricing
• Demand-orientated
• Competitor-orientated
is usually found where a group of
Influences on Pricing Decisions
COMPANY OBJECTIVES NEW COMPETITORS
SUPPLIERS DISTRIBUTORS
pric e
EXISTING
COMPANY MARKET STANCE
MANAGEMENT CULTURE
COMPETITORS COSTS
CUSTOMERS
Political & legal decision
[email protected]
Pricing Strategies
• Skimming pricing strategy: strategy “involves the use of a high price relative to competitive offerings”
– Often used by marketers of highend products – Also by firms introducing a distinctive good with little or no competition – Allows firms to control demand [email protected] the introductory stages of a
Price Reductions to Increase Market Share
[email protected]
Price - Quality Strategies Price
Higher Premium Strategy Lower Good-Value Strategy Economy Strategy
Higher
Quality
r
Overcharging Lowe Strategy
[email protected]
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
[email protected]
•
reduces emphasis on price as a competitive variable by pricing goods at the general level of competitors • Firms focus their own marketing efforts on the product, distribution and promotion elements of the marketing mix
[email protected]
Competitive Pricing Strategies Competitive pricing Strategy:
New Product Pricing Strategies
Market Skimming Market Penetration
>Setting a High Price for a New Product to Maximize Revenues from the Target Market. >Results in Fewer, More Profitable
>
Setting a Low Price for a New Product in Order to Attract a Large Number of Buyers.
>Results in a Larger Market Share.
[email protected]
Product Mix Pricing Strategies
Product Line Pricing Optional-Product Pricing
Setting Price Steps Between Product Line Ite i.e. $299, $399 Pricing Optional or Accessory Products Sold With The Main Product i.e. Car Options
Captive-Product Pricing
Product Mix Pricing Strategies
Pricing Products That Must Be Used With The Main Product i.e. Razor Blades, Film, Software
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 [email protected]
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
[email protected]
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
[email protected]
Price Adjustment Strategies
Discount & Allowance Reducing Prices to Reward Customer Responses such as Paying Early or Promoting the Product. Cash Discount Quantity Discount Functional Discount Seasonal Discount Trade-In Allowance
[email protected]
Segmented Adjusting Prices to Allow for Differences in Custome Products, or Locations.
Customer Product Form Location Time
• payment to a channel member or buyer for performing marketing functions; also known as a functional discount.
Trade Discounts:
[email protected]
Quantity discount
• price reduction granted for a largevolume 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 [email protected]
Allowances
– 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 [email protected]
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
[email protected]
– Uniform-delivered price: system for
Geographic Considerations
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
[email protected]
Pricing Policies
Corporate strategy Strategic pricing policy Elements of marketing mix
[email protected]
Financial strategy
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 analyse the data • c) costs to: a) inform corporate • d) competition strategy • e) reputation developments b) inform pricing • f) risks strategy development • g) government policies and hence financial strategy • h) product life cycle stag
[email protected]
•
Pricing Policies and specific pricing decision 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 [email protected]
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 appealing • Unit pricing: pricing policy in which prices are stated in terms of a recognized unit of measurement or a standard numerical count • Price Flexibility: pricing policy that permits variable prices for goods and services [email protected] • Product-line pricing: practice of
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 [email protected]
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
[email protected]
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 [email protected]
The Transfer Price Dilemma
• Transfer price: price cost assessed when a product is moved from one profit center to another • Profit center: center any part of an organization to which revenue and controllable costs can be assigned
[email protected]
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 [email protected]
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 [email protected]
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 [email protected]
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 • [email protected]
Break even analysis
The break even point occurs where total revenue equals to total costs
[email protected]
References
• 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: 003-021109-3 • 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, [email protected]
doc_635883240.pdf