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Pricing Strategy –(Marketing teacher)
Typical Examples
of Pricing Method
n
Priceline (Buyer-driven Pricing Method) – Name Your Own Price with Time-Sensitive/ Perishable Products (e.g. Air Ticket or Hotel).
What is Price?
The sum of all the values that consumer exchange for the benefits of having or using the product or service.
Dynamic Pricing- Charting different prices depending on individual
customers and situations.
Factors to
Consider When Setting Prices
Internal
Factors Affecting Price Decisions
(1) Marketing Objectives
- Select the Target Market (e.g. High Income Group for Toyota)
- Positioning Carefully
- Decide the Marketing Strategy
General Objectives – Survival, Current Profit Maximization, Market Share Leadership and Product Quality Leadership
Low Price – Keep loyalty and prevent others from entry
(2) Marketing Mix Strategy
Coordinated with product design, distribution and promotion decision
to form a consistent and effective marketing program
Target Costing – “Can we sell it for that? “by determining the cost first before designing the new product.
Non-price positioning – try to use other marketing mix to
create non-price positions (e.g. Sony builds more value into its customer electronics products
and charges a higher price than many competitors
n
Build on quality, promotion, distribution when price is not a critical
factors among 4Ps
(3) Costs
Fixed Costs – Costs that do not vary with production and sales level (e.g. Machinery)
Variable Costs –
Costs that vary with the level of production (e.g. Labor)
Total Cost = Fixed Costs + Variable Costs
(4) Organizational Considerations
Who will set the price?
Large Companies
– Pricing by Divisional or Product Line Managers
Industrial
Markets – By Negotiation with Salespeople
External
Factors Affecting Pricing Decisions
(1) The Market and Demand
Pricing in Different Types of Markets
Pure Competition
Monopolistic Competition (e.g. FMCG in Wellcome Supermarket)
Oligopolistic Competiton (e.g. Petrol Station in Hong Kong – Caltex)
Pure Monopoly – Towngas and China Light Power Group
Consumer Perceptions of Price and Value
Buyer-oriented pricing – involves understanding how much value
consumer place on the benefits they receive from the product and setting the price that fits this value.
Analyzing the Price-Demand Relationships
Demand Curve – Negative Relationship between
Price and Quantity Demanded
Price Elasticity – Responsibility of Quantity demanded
with regard to a change in Price Level
(2) Competitors’Costs, Prices and Offers
Ability of Driving competitors out of the market by cost, prices
and offers
(3) Other External Factors
Economic conditions
Resellers
Government
Social Concerns
General Pricing
Approaches
Cost-Based Pricing – Adding a standard markup to the cost
of the product
e.g. 50% markup on cost
Cost-Plus
Pricing
Break-Even
Pricing or Target Profit Pricing
Value-Based Pricing
Pricing based on the perceived value of the
customers on the product
Value-added Marketing
Competition-Based
Pricing
- Setting
price based on the prices that competitors charge for similar products
New Product
Pricing Strategies
Market-Skimming
Pricing (e.g HDTV – High Definition TV)
Setting a high price for a new product to skim maximum revenue layer by layer from the segments willing to pay the high
price.
Market-Penetration
Pricing (e.g. Other Discount Stores)
Setting a low price for a new product in order
to attract a large number of buyers and a large market share.
First – the market must be highly price
sensitive so that a low price produces more market growth
Second – Production and Distribution
Costs must fall as sales volume increases
Finally – low price can keep out competition
Product Mix
Pricing Strategies
Product Line
Pricing - Different Models of Printers from HP.
Optional
Product Pricing – Charger or portable CD burner for
Notebook
Captive Product
Pricing – Blades for a razor / Film for a camera
By-Product
Pricing – Eible Oil with Detergents, Beef with Leather
Product Bundling
Pricing – Microsoft Office – Word, Excel, PowerPoint and Access.
Price-Adjustment
Strategies
Discount
And Allowance Pricing – special price reduction during a period of time
Segmented Pricing – Different segment with different pricing,
not because of the cost reasons
Psychological
Pricing – e.g. $99.9
Promotional
Pricing – Price Reduction during the Promotion
Geographic
Pricing – e.g. Asian Edition for Book (Zone Pricing)
International
Pricing
Price Changes
Initiating
Price Changes –
Price Cuts
or Increases
Responding
to Price Changes
Buyer Reactions
to Price Changes
Competitor
Reaction to Price Changes
Responding
to Price Changes
Public Policy
and Pricing
Pricing Within
Channel Levels
Pricing Across
Channel Levels
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