Beruflich Dokumente
Kultur Dokumente
What is Pricing To a manufacturer pricing represents the quantity of money, received by the firm or seller for its product. To a customer, it represents a monetary sacrifice. Quantity of money received by the seller PRICE = ---------------------------------------------------------Quantity of goods & services received by buyer
In this equation both the parts are important for price decisions.
Points to learn
s s s
How to set the price of a new product/ service How to adapt the price How to respond to competitors price change
14.3
Too cost oriented Price is not revised often Price is seen as independent of the other elements of marketing mix Price is not varied enough.
14.4
Small companies- Person incharge Large companies- Division & product line managers which is in sink with the pricing objectives set by the top management. Industries where pricing is key factor (petroleum, aerospace etc) Pricing department
14.5
Pricing
Pricing Framework
Demand Corporate objective Price Competitor reactions Barriers in industry like technology Exit barrier Government policy
Costs
14.10
s s s
14-12
Price Cues
s s s
Left to right pricing (Rs. 2999 versus Rs. 3000) Ending prices with 0 or 5 Sale written next to price
14-13
Price Sensitivity
The factors that contribute to price sensitivity are: s Unique value effect s Substitute awareness effect s Difficult comparison effect s End-benefit effect s Price quality effect s Inventory effect
Price Elasticity
Elastic demand s Inelastic demand Demand is likely to be less elastic in following conditions: s There are few or no substitutes or competition s Buyer do not readily notice the higher price s Buyers are slow to change their buying habits s Buyers finds the higher price justified
s
14.19
Costs
s s
It is important for marketers to estimate the costs of manufacturing and marketing the product. Also important to know how costs behave over a period of time & quantities produced. Another factor to be considered is that different firms, within the same industry, operate at different levels of efficiency, reflecting their cost structures. Some costs do not change over production volumes. These are rents, salaries, depreciation, plant & machinery costs etc. These are called sunk or fixed costs.
Estimating Costs
Types of costs:
1) 2) 3)
1)Fixed costs 2) Variable cost 3) Total costs Experience / Learning Curve : ABC Accounting Target Costing
4) 5) 6)
14.23
Step 4 :
Analyzing Competitors costs, prices and offers; 1) Nearest competitors price 2) Value of the offering 3) Worth of the extra to be added 4) Features which competition has & I dont value is to be deleted.
Cost based pricing Mark up pricing Target rate of return pricing Demand based pricing What the traffic can bear pricing Skimming pricing Penetration pricing
Competition oriented pricing Premium pricing Discount pricing Going rate pricing Perceived value pricing Product line pricing Auction type pricing pricing Affordability pricing Differentiated pricing Promotional pricing
s s s
Target return price = Unit cost + Desired return * Invested capital Unit Sales
Skimming pricing
s s s s s s
Association of quality with price Ready to pay higher price to be opinion leader Related to status Competition is low Perceived to be high tech product Objective is to carve out profits from niche
14.29
Penetration pricing
s s s s s
Size of the market is large & growing Customer switch is common Intense competition An entry strategy Price quality association is week
14.30
(i) Acquisition value and (ii) Transaction value Acquisition value of a product:
Perceived benefits
-----------------------------------------Perceived sacrifice
Transaction value determined by comparing buyers reference price to actual price To measure perceived value, a marketer may use any of the following methods: Direct price rating method Direct perceived value rating Economic value to the customer EDLP High low pricing
s s s s s
14.33
Differentiated pricing
s s s s s s
Customer segment pricing Product form pricing Image pricing Channel pricing Location pricing Time pricing
14.34
Discounts
s s s s s
14.35
Promotional pricing
s s s s s s s
Loss leader pricing Special event pricing Cash rebates Low interest financing Longer payment terms Warranties & service contracts Physiological discounting
14.36
Customers ability & willingness to buy; customer lifestyle; benefits sought; characteristics of the product e.g.
When the kopi tiams, local coffee shops in Singapore tried to raise the price of a cup of coffee by 10 cents in March 1994, the grass-root reaction was stormy x When Starbucks Coffee and Spinellis raised their prices in the beginning of 1998 by a hefty 20%, nobody raised an eyelit
x
37
38
Low quality trap Fragile market share trap Shallow pocket trap
14.39
14.40
Shrink the product Substituting less expensive material Reducing or removing features Reducing product service Creating new economy brands
14.41
42
The reason for the competitor price change 3 If the price increase is temporary 3 The effect on your market share & profit 3 The likely response(s) from the other competitors
3
43
Maintain price Raise perceived quality Match competitors price Increase price and improve quality
44
Skimming pricing
x
Charging a high price initially and reducing the price over time Commonly used when introducing innovative products Charging a low price when entering the market to capture market share Used when competitors are closing in with similar or better products
45
1.
Penetration pricing
x
Intermediate pricing
x
Pricing somewhere in between the skimming strategy and the penetration strategy
46
In 1999, Shell in Singapore maintained its price when other petrol companies engaged in a price war until towards the end of the engagement SIA regularly reduce its airfare in anticipation of the developing market situations during inflation, or if demand is expected to increase or if you wish to harvest 47
Price-Flexibility Strategy
s
One-price policysetting one fixed price for all markets Flexible-price policysetting different prices in different markets based on:
Geographic Location, x Time of delivery, or x The complexity of the product
x
48
Depends on the Demand-Cost gap and the influence of competition, social, legal and ethical considerations Example: Life-saving drugs
49
Some have High Search Costs Some have Low Reservation Price
Random Discounting Penetrating Price Bundling Pricing Premium Pricing Experience Curve Pricing Second Market Discounting Geographic Pricing Complementary Pricing
14.51