Pricing

Discussion Question
Selling identical products or services at different prices to different customers (price discrimination) is illegal in business-to-business marketing except under certain conditions. However, price discrimination (also called flexible pricing) is not illegal in business-to-consumer marketing. 1. What are some examples of products or services that use price discrimination in marketing to consumers? 2. Are there any dangers associated with implementing a price discrimination strategy for consumer goods or services?

!ustomer or perceived value is a measure of how much a customer is willing to pay for a product or service. "conomists call this concept the reservation price# the most someone is willing to pay for a product $or the price at which the product is eliminated from the customers budget%.&
- Russell S. iner

Perceived !alue
Customers perceive good or bad price Price vis a vis the benefits derived Reference point past price perceived value > Price > cost
Charging less than the producer could obtain Customers see this as a bargain price

Perceived !alue
Price > perceived value > cost
Customers wont buy unless a monopoly exists. Price reductions or an increase in value are needed.

Price > cost > perceived value

Utter failure. Products are usually withdrawn.

Strategic Pricing "ap

#easuring $ustomer !alue

alue in use
%seful for industrial products and services & reference point is c'osen (ncremental benefits are calculated

#easuring $ustomer !alue

)'e *conomic !alue $oncept

#easuring $ustomer !alue

+ollarmetric Scales

#easuring $ustomer !alue

Pricing *xperiments

!illingness to pay

Pricing *xperiments

#easuring $ustomer !alue

Using the perceived value concept"
# functional relationship exists between mar$et share% perceived value and price.
#arket s'are , f (perceived value-price).
&mprove the product alue added services ' financing

Perceived !alue
)ec'ni/ues Perceived !alue
Clic$ to edit the for (ncreasing outline text format

Copyright 01233 Pearson -ducation% &nc.%

(econd )utline *evel &mprove the product 7uality. &nvest in advertising the brand. +hird )utline *evel &nstitute value'added services. &mprove the sales effort by training ,ourth the sales force to sell on value )utline versus price. *evel ,ifth
5'36

$ompetition and Pricing

-stimating competitors relative cost position allows managers to understand"
4ow low competitors can price their brands. /argins in the category or industry.

(everal cost estimation methods exist.

Reverse engineering Using publicly available data Using efficiency ratios and other data to estimate service costs #pplying the experience curve.
5'38

$ost based pricing

Costs are best used in the pricing decision to determine the price floor. Using costs to set price is problematic"
+otally ignores the customer. !hich $ind of cost should be used in setting price: Costs are often a function of volume% as dictated by the experience curve.
Copyright 01233 Pearson -ducation% &nc.% 5'39

.actors in t'e Pricing +ecision

+eciding How #uc' of t'e Strategic "ap to $apture

Penetration Pricing
*eaves less of the mar$et for the competition *ow margins less attractive to new entries (trong choice when scale effects exist .ot appropriate for products characteri<ed by perceived price'7uality relationships # strong competitive advantage neutrali<ed by low prices *imited flexibility
5'3;

Copyright 01233 Pearson -ducation% &nc.%

+eciding How #uc' of t'e Strategic "ap to $apture

Skimming Pricing
#ppropriate for product categories that are characteri<ed by perceived price'7uality relationships #ppropriate when little chance of future competition exists 4igh margins increase the li$elihood of competition #ppropriate when costs are unrelated to volume and when managers are less concerned about building significant mar$et share #ppropriate early in P*C
5'3=

Copyright 01233 Pearson -ducation% &nc.%

+eciding How #uc' of t'e Strategic "ap to $apture

Pricing policies accomplish many ob>ectives.
Penetration or mar$et share pricing ($imming or prestige pricing Return on sales or investment pricing Pricing for stability Competitive pricing

+eciding How #uc' of t'e Strategic "ap to $apture

.actors .avoring Price
.ew mar$et entrants -xcess manufacturing capacity (low sales growth ,ew% but large competitors Clic$ to edit the outline text format (econd )utline 4igh *evel exit barriers *ow product +hird )utline differentiation *evel 4igh customer price ,ourth sensitivity )utline (trategic importance of *evel a product or company ,ifth

ars

A reference price is any standard of comparison against which a potential transaction or purchase price is compared.&
- Russell S. iner

Specific Pricing )actics

Product'line pricing tactics"
Price bundling?unbundling @hamper?happy mealA Product'line pricing @lxi% vxiA Complementary pricing @videobox B gameC printer B cartridgeA

isit infibeam.com to see various pricing tactics

Specific Pricing )actics

alue pricing
Differs from penetration pricing Relates to customer expectations -D*P

*t'ical $onsiderations
Price is often a focus of ethical issues% particularly in a global context. ,irms are fre7uently critici<ed for pricing policies. +he motive for price increases matters to consumers. Price should be viewed as a$in to the communications mix.