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Market Pricing

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Market Pricing

Market Pricing

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  • 1. MARKET PRICING Prepared by: GREGAR DONAVEN E. VALDEHUEZA, MBA Lourdes College Instructor
  • 2. Learning Objectives
    • Identifies the different factors influencing pricing.
    • Comprehends the considerations in pricing analysis.
    • Differentiates the pricing models base on their significance.
    • Illustrate the supply chain in discounted pricing.
  • 3. Several Factors Influence Pricing
    • Strategic goals
    • Demand of the products
    • Competitor pricing
  • 4. Considerations in Pricing Analysis
    • Is your business recouping your costs (time, money, materials, etc.) to provide it?
    • Is it affordable to customers?
    • What about volume or other forms of discounts?
    • What should be the new prices, if any?
    • How do you know?
  • 5. Pricing Models
    • Cost Plus
        • A predetermined margin ( an amount beyond the minimum necessary ) was added to product cost to form the price.
  • 6.
    • Advantages
        • Easy to calculate
        • Minimal information requirements
        • Easy to administer
        • Tends to stabilize markets – insulated from demand variations and competitive factors
        • Ensures seller against unpredictable, or unexpected later costs
        • Ethical advantages (just price – set standards of fairness in transaction)
    • Disadvantages
        • Provides no incentive for efficiency
        • Tends to ignore the role of consumers
        • Tends to ignore the role of competitors
        • Use of historical accounting costs rather than replacement value
        • Use of “normal” or “standard” output level to allocate fixed costs
        • Inclusion of sunk costs rather than just using incremental (marginal) costs
        • Ignores opportunity costs
        • Contractors may not focus on performance because the cost is always covered by the client
  • 7.
    • Market Pricing
        • Involves establishing the value of the market and its trends, the unit prices being paid within the market, finding a credible position within that range which is consistent with your offering and your strategy, and deducing the margins and volumes which should be available from different channels into the market.
  • 8. Options of Market Pricing
    • Backward Pricing (Demand-Backward Pricing)
        • Method in which costs are deducted from what consumers are willing to pay, to see if an adequate profit margin is possible.
    • Psychological Pricing
        • Setting prices according to the psychographics ( analysis of consumer lifestyles to create a detailed customer profile ) of the aimed-at market segment.
    • Price Lining or Product Line Pricing
        • Method that primarily uses price to create the separation between the different models.
  • 9. Fictional Example of Backward/Discounted Pricing
    • Assume you are the manufacturer and you are going to want to supply this globally via retail outlets and retailing catalogues , duty free outlets and via distributors selling other items . Each step the product makes must make a margin to cover that steps distribution and logistics costs etc.
    • Example route to an overseas market into retail outlets.
    • Starting at the end customer who buys from retailer for the RRP of $200, the retailer whose revenue is $200 per unit sold buys from a wholesaler at a 50% discount off RRP or RRP$200 x 0.5 = $100 leaving the retailer a margin $100 per unit sold above purchase cost to cover their costs of selling and logistics with their multiple local stores.
    • The wholesaler who gets $100 total revenue per unit sold to retailers, buys from import/export sales agent expecting to make a 20% margin (less because they are handling in bulk and logistics are therefore simplified), buys at $80 each from the import/export sales agent making $20 each to cover their costs.
  • 10.
    • The import/export sales agent who makes $80 revenue each when selling to wholesalers, buys the unit direct from the manufacturer expecting to make a 15% margin because of their extensive links with wholesalers in the target country but minimal logistics, they buy at $80 x 0.85 = $68 each.
    • So having researched and established this route to that market for this product the manufacturer can plan to expect that "import/export sales agents" be offered terms equivalent to $68 of the RRP of $200 which could be described as "0.34 of RRP" or a 66% discount off RRP.
    • Note: The Manufacturer will know that to sell through that channel they can expect to get $68 each for these Mid range Hi-fi system which end customers like you or I pay the RRP of $200 each for in the shops. (these figures are made up for example purposes, I have no idea what the relative margins are in this particular market) .
  • 11.
    • If the direct costs associated with making this product are parts $25, labour $10, plus direct tooling and machinery capital writing down costs of $5 per unit making a total product (production) specific unit cost of $40, the manufacturer will make a gross margin of $28 per unit or 28/68 = a 41% margin.
    • From this 41% margin, $28 per unit, the manufacturer must be able fund all their fixed costs including management and administration, production management, development engineering, their own sales and marketing efforts, buildings, etc.
  • 12.
    • Competitive Pricing
        • basing pricing decisions on how competitors are setting their price .
  • 13. Options of Competitive Pricing
    • Below Competition Pricing
        • A marketer attempting to reach objectives that require high sales levels (e.g., market share objective) may monitor the market to ensure their price remains below competitors.
    • Above Competition Pricing
        • Marketers using this approach are likely to be perceived as market leaders in terms of product features, brand image or other characteristics that support a price that is higher than what competitors offer.
    • Parity Pricing
        • A simple method for setting the initial price at the same level of competitors’ price.
  • 14. References
    • http://managementhelp.org/mrktng/pricing/pricing.htm
    • http://en.wikipedia.org/wiki/Cost-plus_pricing
    • http://www.knowthis.com/tutorials/principles-of-marketing/setting-price/8.htm
    • http://www.businessdictionary.com/
  • 15. GOOD DAY!!! 