Pricing

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Pricing

  1. 1. Pricing The Puzzle of the Next Century
  2. 2. Costs + Margins = PRICE Pricing Puzzle “ A price is not merely a function of costs and margins… ”
  3. 3. Costs + Margins = PRICE Pricing Puzzle “ A price is not merely a function of costs and margins… ” “…it is an expression of VALUE ”
  4. 4. Pricing Puzzle  Production costs  Indirect costs  Advertising costs  Distribution costs  Manufacturer’s margin  Distributor’s margin  Seller’s margin  Product performance • Usefulness & Quality  Image / Aspirations • Brand Equity  Availability • Distribution Strategy  Service • Before/During & After sales Minimize Optimize Maximize Costs + Margins = PRICE VALUE
  5. 5. Pricing Puzzle 4 P’s  PRODUCT  PRICE  PLACE  PROMOTION 4 C’s  CUSTOMER VALUE  COST  CONVENIENCE  COMMUNICATION
  6. 6. Pricing Puzzle 4 P’s  PRODUCT  PRICE  PLACE  PROMOTION 4 C’s  CUSTOMER VALUE  COST  CONVENIENCE  COMMUNICATION
  7. 7. A Secret Pie  Impact of a 1 % price increase on profits – Coca-Cola 6,4 % – Nestlé 17,5 % – Ford 26,0 % – Philips 28,7 %
  8. 8. Pricing Puzzle 4 P’s  PRODUCT  PRICE  PLACE  PROMOTION 4 C’s  CUSTOMER VALUE  COST  CONVENIENCE  COMMUNICATION Seller’s Dilemma
  9. 9. Pricing Puzzle 4 P’s  PRODUCT  PRICE  PLACE  PROMOTION 4 C’s  CUSTOMER VALUE  COST  CONVENIENCE  COMMUNICATION “ Tomorrow’s winner companies will be those who offer distinct products at comparatively low market prices ”
  10. 10.  Physical Differences – Features, performance, durability, conformance, design, etc…  Availability Differences – Distribution channels ; Stores, mail-order, internet, etc…  Service Differences – Delivery, installation, training, consulting, maintenance, etc…  Price Differences – Price positioning (Very high / High / Medium / Low / Very Low)  Image Differences – Symbols, atmosphere, events, media, etc… Key = Differentiation The key to drive value is to offer relevant and distinctive product differentiation
  11. 11.  Physical Differences – Levi’s Engineered Jeans (Ergonomic construction, durability, style)  Availability Differences – Dell Computer’s customized production, Volkswagen “e.lupo”  Service Differences – Acıbadem Hospital – Mother Care Division, Nissan “5-year Warranty”  Image Differences – Audi vs Mercedes, DuPont (Innovation Leader) Differentiation : Examples Key = Differentiation
  12. 12.  Perdue Chicken (USA) – Guaranteed tenderness (30 % market-share, 10 % premium pricing)  Flora Drinking Water (Turkey – Sabancı Holding) – Service, packaging, attributes, operation  Starbuck’s Coffee (USA) – Atmosphere, standard service Differentiating commodities… Key = Differentiation Everything can be differentiated !...
  13. 13. Pricing Decisions  INTERNAL FACTORS – Marketing Objectives » Positioning » Target Group – Marketing Mix Strategy » 4 P’s – Costs » Fixed & Variable – Management Approach » Responsibility » Perspective  EXTERNAL FACTORS – Market » Pure Competition » Monopolistic Competition » Oligopolistic Competition » Pure Monopoly – Demand » Elastic / Inelastic – Competition » Competitors’ offers » Competitiors’ reactions – Economy » Buying power – Government Influence » Laws & Regulations
  14. 14. Pricing Approaches  Cost-Based Pricing – Cost-Plus Pricing » Product Cost + Standard Mark-Up = Price – BE Analysis & Target Profit Pricing » A necessary survival tool  Buyer-Based Pricing – Perceived Value » Consider buyers’ perceptions of value NOT the cost  Competition-Based Pricing – Basing prices on competitors’ prices » Premium Pricing » Going-Rate Pricing » Discount Pricing
  15. 15. Pricing Strategies  PRICING a SINGLE NEW PRODUCT – Market-Skimming » Highest possible price to skim small but profitable segments – Penetration Pricing » Lowest possible price to penetrate the market quickly
  16. 16. Pricing Strategies  PRODUCT-MIX PRICING – Product-Line Pricing » Establishing product lines at different price points  Volkswagen (Polo, Bora, Golf, Passat) – Optional-Product Pricing » Offering to sell optional/accessory products along with the main product  BMW & Mercedes – Captive-Product Pricing » Offering products, which must be used with the main product  Gillette razor blades – By-Product Pricing » Valued by-products positively affect pricing  Petroleum by-products – Product-Bundle Pricing » Several products combined and offered at a reduced price  Season tickets, New-year packages of hotels
  17. 17.  Adjust basic prices to account for various customer differences and changing situations – Discounts & Allowances » To attract/reward certain customer respones – Discriminatory Pricing » To allow for differences in customers, products & locations – Promotional Pricing » Varying price reductions offered depending on shopping period, item purchased, etc... Price Adjustments
  18. 18. Price Adjustment Strategies  DISCOUNTS & ALLOWANCES – Cash Discounts » Attract early payments  A 15% reduction applied to those customers who buy on cash – Quantity Discounts » Price reduction to buyers who buy large quantities – Functional Discounts » Differentiating prices among trade channel members  Different mark-ups for OLSs and corners – Seasonal Discounts » Price reduction to buyers who buy out-of-season – Allowances » Trade-in Allowances  Bring the old, take away the new... » Promotional Allowances  Discounts provided in return for participating in special programs
  19. 19. Price Adjustment Strategies  DISCRIMINATORY PRICING – Customer-segment Pricing » Different customers pay different prices  Disneyland Adult vs Child pricing – Product-form Pricing » Different versions of the product are priced differently, regardless of the cost  An additional feature with a slight cost might justify a fat price premium – Location Pricing » Different locations are priced differently, regardless of the cost  Business Class seats – Time Pricing » Prices differ from month to month, day to day, even hour to hour  Prime-time/Off-prime-time pricing of advertising time
  20. 20. Price Adjustment Strategies  PROMOTIONAL PRICING – Loss Leaders » Attract consumers in store, sell other items as well  Hyper-Markets (Carrefour, Gima, Praktiker, Migros, etc...) – Special-event Pricing » Offering discounts at times of special events  Valentine’s Day, New year, Şişli Municipality’s discount campaign – Cash Rebates » Discounts offered to consumers for purchases made in a limited period of time  Dockers campaign (20 % off) – Simple Cash Discounts » Over-the-counter to support revenues OR to defend against competition
  21. 21.  Consumer’s Mind-set (Black-Box) – BE CAREFUL !!! » Price vs Quality Image  CK perfume  Rolex watch  Pharmaceutical items » Perceptions  30.000.000 TL vs 29.950.000 TL Psychology of Price
  22. 22. One Final Word “ A product is not a product unless it sells. Otherwise, it’s just a museum piece…” Ted Levitt

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