Pricing rests on Value: Capturing value is its purpose Process of creating, communicating, and delivering value Pricing, a complex task; There is Science side and an art side to it.
Pricing to capture value/Customer based approach Customer value has to be key in the pricing Pricing to value ensures two things: The customer finds the price justifiable monetary worth the offer , and the firm finds the price apt for earning its due share of value from the market by the way of sales, income and profits
Does pricing capture the due value? Or, are you competing away your resources? Pricing that benefits only the buyer and lands the company in red does not constitute value pricing. P&G was almost competing away the values of its offers. Firms struggle to get the price value balance right.
Pricing objectives Firms seek a mix of Objectives from pricing Different permutations of objectives apply to different firms
Setting the price Step 1 Selecting the pricing objectives Survival Maximum current profits Maximum market share
Pricing methods/Pricing strategies Broad Categories of pricing methods Cost based pricing Under cost based category, the following methods/approaches are commonly used: Mark up pricing Absorption cost pricing Target rate of return pricing Marginal cost pricing
Demand Based Pricing The following methods belong to the category of demand/market based pricing What the traffic can bear pricing Skimming pricing Penetration pricing
Estimating Costs Types of costs and levels of production Variable costs Total costs Average Costs Experience curve pricing Target Costing
Analyzing Competitors’ cost, pricing and offers
Selecting Pricing Method Markup Pricing Target Return pricing Perceived Value Pricing : total of- value perceived for each of the feature (tangible as well as intangible)of the product by the customers Going Rate Pricing Auction Type Pricing
Selecting The final price Impact of other marketing activities Brands with average relative quality but high relative advertising budgets were able to charge premium prices. Consumers were willing to pay higher prices for known products rather than unknown ones Brands with high relative quality and high relative advertising obtained the highest prices. Conversely, brands with low relative quality and low advertising charged the lowest prices. The positive relationships btw high prices and high advertising held most strongly in the later stages of the product life cycle for the market leaders. Company Pricing Policies Impact Of price on other Parties
Adapting the Price Geographical Pricing Price Discounts & Allowances Quantity Discount Functional Discount Seasonal Discount Allowance Promotional Pricing Loss Leader Pricing Special Event Cash Rebates Low interset Financing Longer Paymnet terms Warranties And Service Contracts Psychological Discounting
Differentiated Pricing Price Discrimination Customer Segment Pricing Product Form pricing Channel pricing - vending Machine Location pricing - Theater Time Pricing - Early Bird
Initiating and Responding to Price Changes Initiating Price Cuts Low quality Trap Fragile market Trap Shallow Pocket Trap Price War trap Initiating Price Increase Cost Inflation Over demand
Generally consumers Prefer Small Price increases on a regular basis instead of sudden Several Techniques - Sense of fairness around any price increase Making low visibility price moves such as eliminating discounts, increasing minimum order size and curtailing production of low margin products. Shrinking amount of product Substituting less expensive materials Reducing product features Reducing product services Using less expensive packaging