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Chapter 13 Designing Pricing Strategies and Programs PowerPoint by Karen E. James Louisiana State University - Shreveport
Objectives <ul><li>Understand how companies price a new good or service. </li></ul><ul><li>Identify how prices can be adap...
Price Has Many Names <ul><li>Rent </li></ul><ul><li>Tuition </li></ul><ul><li>Fare </li></ul><ul><li>Monthly payment </li>...
Setting the Price <ul><li>Pricing Procedure </li></ul><ul><li>Select pricing objective </li></ul><ul><li>Determine demand ...
Setting the Price <ul><li>Pricing Procedure </li></ul><ul><li>Select pricing objective </li></ul><ul><li>Determine demand ...
Marketing Strategies <ul><li>Product is more distinctive </li></ul><ul><li>Buyers are less aware of substitutes </li></ul>...
Marketing Strategies <ul><li>There are few or  no substitutes </li></ul><ul><li>Buyers do not readily notice the higher pr...
Setting the Price <ul><li>Pricing Procedure </li></ul><ul><li>Select pricing objective </li></ul><ul><li>Determine demand ...
Setting the Price <ul><li>Key Pricing Terms: </li></ul><ul><ul><li>Fixed costs:  do not vary directly with changes in leve...
Setting the Price <ul><li>Pricing Procedure </li></ul><ul><li>Select pricing objective </li></ul><ul><li>Determine demand ...
Setting the Price <ul><li>Pricing Procedure </li></ul><ul><li>Select pricing objective </li></ul><ul><li>Determine demand ...
Setting the Price <ul><li>Pricing Procedure </li></ul><ul><li>Select pricing objective </li></ul><ul><li>Determine demand ...
Adapting the Price <ul><li>Geographical Pricing </li></ul><ul><ul><li>Barter </li></ul></ul><ul><ul><li>Compensation deal ...
Adapting the Price <ul><li>Cash  discounts </li></ul><ul><li>Quantity discounts </li></ul><ul><li>Trade-in allowances </li...
Adapting the Price <ul><li>Loss-leader pricing </li></ul><ul><li>Special-event pricing </li></ul><ul><li>Cash rebates </li...
Adapting the Price <ul><li>Customer segment pricing </li></ul><ul><li>Product-form pricing </li></ul><ul><li>Image pricing...
Adapting the Price <ul><li>Price discrimination works when: </li></ul><ul><ul><li>Market segments show different intensiti...
Adapting the Price <ul><li>Product-line pricing </li></ul><ul><li>Optional-feature pricing </li></ul><ul><li>Captive-produ...
Initiating and Responding  to Price Changes <ul><li>Strategic Options Include: </li></ul><ul><ul><li>Maintain price and pe...
Initiating and Responding  to Price Changes <ul><li>Key Considerations </li></ul><ul><li>Initiating price cuts </li></ul><...
Initiating and Responding  to Price Changes <ul><li>Key Considerations </li></ul><ul><li>Initiating price cuts </li></ul><...
Initiating and Responding  to Price Changes <ul><li>Key Considerations </li></ul><ul><li>Initiating price cuts </li></ul><...
Initiating and Responding  to Price Changes <ul><li>Key Considerations </li></ul><ul><li>Initiating price cuts </li></ul><...
Initiating and Responding  to Price Changes <ul><li>Maintain price and profit margin </li></ul><ul><li>Maintain price, add...
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Designing Pricing Strategies and Programs

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Designing Pricing Strategies and Programs

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Transcript of "Designing Pricing Strategies and Programs"

  1. 1. Chapter 13 Designing Pricing Strategies and Programs PowerPoint by Karen E. James Louisiana State University - Shreveport
  2. 2. Objectives <ul><li>Understand how companies price a new good or service. </li></ul><ul><li>Identify how prices can be adapted to meet varying circumstances. </li></ul><ul><li>Learn when price changes should be initiated and how soon companies should respond to competitive price changes. </li></ul>
  3. 3. Price Has Many Names <ul><li>Rent </li></ul><ul><li>Tuition </li></ul><ul><li>Fare </li></ul><ul><li>Monthly payment </li></ul><ul><li>Fee </li></ul><ul><li>Dues </li></ul><ul><li>Interest </li></ul><ul><li>Donation </li></ul>
  4. 4. Setting the Price <ul><li>Pricing Procedure </li></ul><ul><li>Select pricing objective </li></ul><ul><li>Determine demand </li></ul><ul><li>Estimate costs </li></ul><ul><li>Analyze competition </li></ul><ul><li>Select pricing method </li></ul><ul><li>Select final price </li></ul><ul><li>Survival </li></ul><ul><li>Maximize current profits </li></ul><ul><li>Maximize market share </li></ul><ul><ul><li>Penetration strategy </li></ul></ul><ul><li>Market skimming </li></ul><ul><ul><li>Skimming strategy </li></ul></ul><ul><li>Product quality leaders </li></ul><ul><li>Partial cost recovery </li></ul>
  5. 5. Setting the Price <ul><li>Pricing Procedure </li></ul><ul><li>Select pricing objective </li></ul><ul><li>Determine demand </li></ul><ul><li>Estimate costs </li></ul><ul><li>Analyze competition </li></ul><ul><li>Select pricing method </li></ul><ul><li>Select final price </li></ul><ul><li>Understand factors that affect price sensitivity </li></ul><ul><li>Estimate demand curves </li></ul><ul><li>Understand price elasticity of demand </li></ul><ul><ul><li>Elasticity </li></ul></ul><ul><ul><li>Inelasticty </li></ul></ul>
  6. 6. Marketing Strategies <ul><li>Product is more distinctive </li></ul><ul><li>Buyers are less aware of substitutes </li></ul><ul><li>Buyers cannot easily compare quality of substitutes </li></ul><ul><li>The expenditure is a lower part of buyer’s total income </li></ul><ul><li>The expenditure is small compared to the total cost </li></ul><ul><li>Part of the cost is borne by another party </li></ul><ul><li>The product is used with assets previously bought </li></ul><ul><li>The product is assumed to have more quality, prestige, or exclusiveness </li></ul><ul><li>Buyers cannot store the product </li></ul>Conditions Under Which Consumers are Less Price Sensitive:
  7. 7. Marketing Strategies <ul><li>There are few or no substitutes </li></ul><ul><li>Buyers do not readily notice the higher price </li></ul><ul><li>Buyers are slow to change their buying habits and search for lower prices </li></ul><ul><li>Buyers think higher prices are justified </li></ul>Conditions Under Which Demand is Less Elastic:
  8. 8. Setting the Price <ul><li>Pricing Procedure </li></ul><ul><li>Select pricing objective </li></ul><ul><li>Determine demand </li></ul><ul><li>Estimate costs </li></ul><ul><li>Analyze competition </li></ul><ul><li>Select pricing method </li></ul><ul><li>Select final price </li></ul><ul><li>Types of costs and levels of production must be considered </li></ul><ul><li>Accumulated production leads to cost reduction via the experience curve </li></ul><ul><li>Differentiated marketing offers create different cost levels </li></ul>
  9. 9. Setting the Price <ul><li>Key Pricing Terms: </li></ul><ul><ul><li>Fixed costs: do not vary directly with changes in level of production </li></ul></ul><ul><ul><li>Variable costs: vary with production </li></ul></ul><ul><ul><li>Total costs: sum of fixed and variable costs a given level of production </li></ul></ul><ul><ul><li>Average cost: cost per unit at a given level of production </li></ul></ul>
  10. 10. Setting the Price <ul><li>Pricing Procedure </li></ul><ul><li>Select pricing objective </li></ul><ul><li>Determine demand </li></ul><ul><li>Estimate costs </li></ul><ul><li>Analyze competition </li></ul><ul><li>Select pricing method </li></ul><ul><li>Select final price </li></ul><ul><li>Firms must analyze the competition with respect to: </li></ul><ul><ul><li>Costs </li></ul></ul><ul><ul><li>Prices </li></ul></ul><ul><ul><li>Possible price reactions </li></ul></ul><ul><li>Pricing decisions are also influenced by quality of offering relative to competition </li></ul>
  11. 11. Setting the Price <ul><li>Pricing Procedure </li></ul><ul><li>Select pricing objective </li></ul><ul><li>Determine demand </li></ul><ul><li>Estimate costs </li></ul><ul><li>Analyze competition </li></ul><ul><li>Select pricing method </li></ul><ul><li>Select final price </li></ul><ul><li>Price-setting begins with the three “C’s” </li></ul><ul><li>Select method: </li></ul><ul><ul><li>Markup pricing </li></ul></ul><ul><ul><li>Target-return pricing </li></ul></ul><ul><ul><li>Perceived-value pricing </li></ul></ul><ul><ul><li>Value pricing </li></ul></ul><ul><ul><li>Going-rate pricing </li></ul></ul><ul><ul><li>Auction-type pricing </li></ul></ul><ul><ul><li>Group pricing </li></ul></ul>
  12. 12. Setting the Price <ul><li>Pricing Procedure </li></ul><ul><li>Select pricing objective </li></ul><ul><li>Determine demand </li></ul><ul><li>Estimate costs </li></ul><ul><li>Analyze competition </li></ul><ul><li>Select pricing method </li></ul><ul><li>Select final price </li></ul><ul><li>Requires consideration of additional factors: </li></ul><ul><ul><li>Psychological pricing </li></ul></ul><ul><ul><li>Gain-and-risk-sharing pricing </li></ul></ul><ul><ul><li>Influence of other marketing mix variables </li></ul></ul><ul><ul><li>Company pricing policies </li></ul></ul><ul><ul><li>Impact of price on other parties </li></ul></ul>
  13. 13. Adapting the Price <ul><li>Geographical Pricing </li></ul><ul><ul><li>Barter </li></ul></ul><ul><ul><li>Compensation deal </li></ul></ul><ul><ul><li>Buyback arrangement </li></ul></ul><ul><ul><li>Offset </li></ul></ul>
  14. 14. Adapting the Price <ul><li>Cash discounts </li></ul><ul><li>Quantity discounts </li></ul><ul><li>Trade-in allowances </li></ul><ul><li>Functional discounts </li></ul><ul><li>Seasonal discounts </li></ul><ul><li>Promotion allowances </li></ul>Price Discounts and Allowances:
  15. 15. Adapting the Price <ul><li>Loss-leader pricing </li></ul><ul><li>Special-event pricing </li></ul><ul><li>Cash rebates </li></ul><ul><li>Low-interest financing </li></ul><ul><li>Longer payment terms </li></ul><ul><li>Warranties and service contracts </li></ul><ul><li>Psychological discounting </li></ul>Promotional Pricing Tactics:
  16. 16. Adapting the Price <ul><li>Customer segment pricing </li></ul><ul><li>Product-form pricing </li></ul><ul><li>Image pricing </li></ul><ul><li>Channel pricing </li></ul><ul><li>Location pricing </li></ul><ul><li>Time pricing </li></ul>Discriminatory Pricing Tactics:
  17. 17. Adapting the Price <ul><li>Price discrimination works when: </li></ul><ul><ul><li>Market segments show different intensities of demand </li></ul></ul><ul><ul><li>Consumers in lower-price segments can not resell to higher-price segments </li></ul></ul><ul><ul><li>Competitors can not undersell the firm in higher-price segments </li></ul></ul><ul><ul><li>Cost of segmenting and policing the market does not exceed extra revenue </li></ul></ul>
  18. 18. Adapting the Price <ul><li>Product-line pricing </li></ul><ul><li>Optional-feature pricing </li></ul><ul><li>Captive-product pricing </li></ul><ul><li>Two-part pricing </li></ul><ul><li>By-product pricing </li></ul><ul><li>Product-bundle pricing </li></ul>Product-Mix Pricing Tactics:
  19. 19. Initiating and Responding to Price Changes <ul><li>Strategic Options Include: </li></ul><ul><ul><li>Maintain price and perceived quality; selectively prune customers </li></ul></ul><ul><ul><li>Raise price and perceived quality </li></ul></ul><ul><ul><li>Partially cut price and raise quality </li></ul></ul><ul><ul><li>Fully cut price, maintain perceived quality </li></ul></ul><ul><ul><li>Maintain price, reduce perceived quality </li></ul></ul><ul><ul><li>Introduce an economy model </li></ul></ul>
  20. 20. Initiating and Responding to Price Changes <ul><li>Key Considerations </li></ul><ul><li>Initiating price cuts </li></ul><ul><li>Initiating price increases </li></ul><ul><li>Reactions to price changes </li></ul><ul><li>Responding to competitor’s price changes </li></ul><ul><li>Circumstances leading to price cuts: </li></ul><ul><ul><li>Excess plant capacity </li></ul></ul><ul><ul><li>Declining market share </li></ul></ul><ul><ul><li>Attempt to dominate the market via lower costs </li></ul></ul><ul><li>Price cutting traps: </li></ul><ul><ul><li>Price/quality perceptions </li></ul></ul><ul><ul><li>Low prices don’t create market loyalty </li></ul></ul><ul><ul><li>Competition may match or beat price cuts </li></ul></ul>
  21. 21. Initiating and Responding to Price Changes <ul><li>Key Considerations </li></ul><ul><li>Initiating price cuts </li></ul><ul><li>Initiating price increases </li></ul><ul><li>Reactions to price changes </li></ul><ul><li>Responding to competitor’s price changes </li></ul><ul><li>Circumstances leading to price increases: </li></ul><ul><ul><li>Cost inflation </li></ul></ul><ul><ul><li>Overdemand </li></ul></ul><ul><li>Methods of dealing with overdemand: </li></ul><ul><ul><li>Delayed quotation pricing </li></ul></ul><ul><ul><li>Escalator clauses </li></ul></ul><ul><ul><li>Unbundling </li></ul></ul><ul><ul><li>Reduction of discounts </li></ul></ul>
  22. 22. Initiating and Responding to Price Changes <ul><li>Key Considerations </li></ul><ul><li>Initiating price cuts </li></ul><ul><li>Initiating price increases </li></ul><ul><li>Reactions to price changes </li></ul><ul><li>Responding to competitor’s price changes </li></ul><ul><li>Firms must monitor both customer and competitor reactions </li></ul><ul><li>Competitor reactions are common when: </li></ul><ul><ul><li>Few firms offer the product </li></ul></ul><ul><ul><li>The product is homogeneous </li></ul></ul><ul><ul><li>Buyers are highly informed </li></ul></ul>
  23. 23. Initiating and Responding to Price Changes <ul><li>Key Considerations </li></ul><ul><li>Initiating price cuts </li></ul><ul><li>Initiating price increases </li></ul><ul><li>Reactions to price changes </li></ul><ul><li>Responding to competitor’s price changes </li></ul><ul><li>The degree of product homogeneity affects how firms respond to price cuts initiated by the competition </li></ul><ul><li>Market leaders can respond to aggressive price cutting by smaller competitors in several ways </li></ul>
  24. 24. Initiating and Responding to Price Changes <ul><li>Maintain price and profit margin </li></ul><ul><li>Maintain price, add value </li></ul><ul><li>Increase price, improve quality </li></ul><ul><li>Launch a low-price fighter line </li></ul>Market Leader Responses to Competitor Initiated Price Cuts: <ul><li>Reduce price </li></ul>
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