MARKETING Pricing Strategies

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MARKETINGPricing Strategies
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Overview

• Definition of price
• Prices in BU113 companies
• Factors that influence the pricing decision
• Pricing objectives
• Three major pricing strategies and their
  advantages and disadvantages
• Pricing strategies over the product life cycle
• Pricing tactics

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Price -- Definition

• the amount of money charged for a product or
  service
• the sum of all the values that consumers exchange
  for the benefits of having or using the product
  or service
• Examples of price?
• Tuition, rent, fare, retainer, toll, salary/wage,
  dues

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Prices -- BU113 Companies

• What objectives did the managers have in mind
  when they set their prices?

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Factors in Setting Price
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Pricing Objectives
VolumeSales Maximization Market Share
Profitability Profit-Maximization Target Return
Goals
Meet Business Objectives

• Other Pricing Objectives
• Status Quo
• Image
• Social Ethical Considerations

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Price Strategies for New Products
Penetration Pricing
Low price ? establish product in the market
PRICE
Skimming Pricing
High price/Prestige pricing ? appeal to early
adopters recover high RD costs
PRICE
Skimming ? Penetration
PRICE
Lower price over time ? Move inventory, stimulate
D, extend product life
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Marketing Strategy Over the Product Life Cycle
INTRODUCTION GROWTH MATURITY
DECLINE Marketing strategy Market
development Increase market Defend market
Maintain efficiency in emphasis share
share exploiting product Promotio
n Mount sales Appeal to Emphasize
Reinforce loyal Strategy promotion for mass
market brand differences, customers
reduce product awareness benefits
loyalty promotion costs Place
strategy Distribute through Build intensive
Enlarge Be selective in selective
outlets network of distribution
distribution, trim outlets network
unprofitable outlets
Pricing High price/unique Lower price Price
at or below Set price to strategy product /
cover over time competition remain
profitable production costs or reduce
to Low price/gain liquidate market
share
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Determining Prices
Cost-Oriented - Variable/Fixed
Break-even Analysis
Price-Setting Tools
EconomicSupply/Demand
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Elasticity of Demand
measure of the sensitivity of demand to changes
in prices
not price sensitive - no real change in demand
price sensitive - changes in demand
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Market-based Pricing

• Pricing Existing Products/Services - 3 options
• Pricing below market prices ? price wars
• EX airlines, store brand vs. manufacturers
  brand
• Dumping
• Pricing above prevailing market prices for
  similar products
• EX Sony ? higher price higher quality?
• Pricing at or near market prices

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Pricing Tactics

• Price Lining
• Price points Setting a limited number of prices
  for certain categories of products
• Psychological Pricing
• Odd-even
• Discounting
• Quantity discounts
• Cash discounts (2/10 net 30)
• Web programs free!

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Cost-based Pricing (Cost-Plus)

• Cover costs
• Material
• Labor
• Capital resources
• Marketing
• Mark-up
• Targeted return for shareholders
• ? Costs mark-up Sales price
• 1.00 0.50 1.50 (50 markup)

variable costs
fixed costs
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Mark-up Calculation Exercise

• Price per product
• Less the cost per product (what you paid the
  supplier, e.g. total cost paid / of items
  purchased)

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Breakeven Analysis
TC TR
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Breakeven Point Formula
(Contribution Margin)
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Review

• 5 Factors that influence prices
• Pricing objectives
• Pricing strategies at different stages of the
  Product Life Cycle (advantages/disadvantages)
• Methods of Determining Prices
• Elasticity of demand
• Mark-up
• Breakeven Analysis