Pricing Strategy Essay

Developing Pricing Strategies and Programs Marketing Management Price Changing in the Internet Internet reverse the fixed pricing trend, since: Buyers can: Get instant price comparisons from thousands of vendors.

Name their price and have it met. Get products free. Both Buyers and Sellers can: Negotiate prices in online auctions and exchanges Sellers can: Monitor customer behavior and tailors offers to individuals. Give certain customers access to special prices. Consumer Psychology and Pricing Economists assume: The consumer are “price takers”.

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Consumers accept price at “face value”. Marketers recognize, that consumers often actively: Process information Interpreting price from their knowledge Formal communications Informal communications Other factors Consumer Psychology and Pricing (cont. ) Consumer perceptions of price based on: Reference Price To compare an observed price to an internal reference price their remember Price-Quality Inference Use price as an indicator of quality Price Ending Price should end in an odd number Pricing Cues Limited availability Setting the Price Six step procedure 1.Selecting the pricing objective 2. Determining demand 3. Estimating costs 4. Analyzing competitor’s cost, prices and offers 5.

Selecting a pricing method 6. Selecting the final price Step 1 Selecting the Pricing Main Objectives Survival > Overcapacity, intense competition or changing consumer wants. Maximum Current Profit > Emphasizing current performance. Maximum Market Share > Market Penetration Pricing Strategy.

Step 1 Selecting the Pricing Main Objectives Maximum Market Skimming > Skim the maximum revenue from various segments. Product-quality Leadership gt; High quality = premium price. Other Objectives Determining Demand Price Sensitivity > Understanding customers’ sensitivity in price to estimate demand. Step 2 Estimating Demand Curve Measure to attempt to measure demand curves: > Surveys > Price Experiments > Statistical analysis Price Elasticity of Demand > Responsiveness of Demand through price changing Inelastic and Elastic Demand Figure 14. 2 Step 3 Estimating Costs Types of Costs and Levels of Production > Fixed Cost > Variable Cost > Total Cost > Average CostAccumulated Production Target Costing Cost per unit as a function of Accumulated Production: The Experience Curve Figure 14. 4 Analyzing Competitor’s Costs, Prices and Offers Research Analyze competitors current financial situation, recent sales, customer loyalty and corporate objectives.

Step 4 Compare Evaluate Selecting a Pricing Method Step 5 Markup pricing Example Variable cost = $10 Fixed cost = $300,000 Expected unit sales = 50,000 20% markup on sales Selecting a Pricing Method Step 5 Target-Return pricingExample Invested capital = $1,000,000 Targeted ROI = 20% Break-Even Chart for Determining Target-Return Price and Break-Even Volume Figure 14. 6 Selecting a Pricing Method Perceived value pricing Buyers image on product performance, channel deliverables, warranty quality, customer support, supplier’s reputation, trustworthiness, and esteem. Step 5 Value pricing Becoming a low-cost producer without sacrificing quality.

Going-Rate pricing Selecting a Pricing Method Auction-Type Pricing English auctions (auction bid) Dutch auctions (descending bid) Sealed-bid auctionsStep 5 Selecting the Final Price Impact of other marketing activities Company pricing policies Gain-And-Risk-Sharing pricing Impact of price on other parties Step 6 Adapting the Price Geographical Pricing (Cash, Countertrade, Barter) Price Discount and Allowances Promotional Pricing Differentiated Pricing Geographical Pricing (Cash, Countertrade, Barter) The company decides how to price its product to different locations and countries. Countertrade Barter Compensation deal Buyback arrangement Offset Price Discount and AllowancesDiscount Quantity Discount Functional Discount Seasonal Discount Allowance Promotional Pricing Loss-leader pricing Special-event pricing Cash rebates Low-interest financing Longer payment terms Warranties and service contracts Psychological discounting Differentiated Pricing Price discrimination First degree Second degree Third degree Customer-segment pricing Product-form pricing Image pricing Location pricing Time pricing Initiating and Responding to Price Change Initiating Price Cuts Initiating Price Increases Responding to Competitors’ Price Changes Thank You