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Session 24 MG 220 BBA - 8 Nov 10

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Session 24 …

Session 24
MG 220 Marketing Management
BBA 09 Sec C

Published in Business , News & Politics
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  • 1. Part 5: Shaping the Marketing Offerings
    > Setting the Price
    > Adapting the Price
    > Initiating and Responding to Price Changes
    Class Presentation | Session 24 | 8 Nov 2010
  • 2. Setting the PriceProcess Review
    Concept of Price-Tiers
    In some markets, as many as eight price points or price-tiers can be found:
    Ultimate
    Gold Standard
    Luxury
    Special Needs
    Middle
    Ease/Convenience
    Me too, but cheaper
    Price Alone
    Some or all of these price points may exist in a certain market
    MG 220 Marketing Management
    2
  • 3. Setting the PriceProcess Review
    Concept of Price-Tiers
    Consumers often rank products based on price tiers for a certain category
    Within any tier, there are price bands
    Example of Ice-cream brands:
    Steps in Setting the Price
    Step 1: Setting the Price Objective
    Step 2: Determining Demand
    Step 3: Estimating Objectives
    Step 4: Analyzing Competitors’ costs, prices & offer
    Step 5: Selecting the price method
    Step 6: Selecting the final price
    MG 220 Marketing Management
    3
  • 4. Setting the PriceStep 1: Selecting the Pricing Objective
    Key Price Objectives
    Survival
    Short-term
    Maximum Current Profit
    Maximum Market Share
    Setting lowest price to stimulate demand
    Conditions: Highly price sensitive market | production & distribution costs fall with accum. Prod. | low price discourages competition
    Maximum Market Skimming
    Price start high and are reduced gradually
    Conditions: Sufficient no. of buyers have high demand | unit cost of producing small vol are not high | high initial cost doesn’t attract more competition | high price: superior prod image
    Product-Quality Leadership
    “Affordable luxuries”
    Being premium, quality product yet just within reach of consumers
    MG 220 Marketing Management
    4
  • 5. Setting the PriceStep 2: Determining Demand
    Key considerations in determining demand
    Price Sensitivity
    Companies need to understand price sensitivityof their consumers
    Also trade-offs people are willing to makebetween price and product characteristics
    Estimating Demand Curves
    Statistical analysis
    Price experiments
    Surveys
    Price Elasticity of Demand
    Responsiveness of consumers to price
    Based on elasticity, it can be determined how much effect will be on total revenue
    E.g. More elastic means, lower price will produce more total revenue
    Price elasticity depends on magnitude and direction of price change
    Long-run price elasticity is different from short-run price elasticity
    MG 220 Marketing Management
    5
  • 6. Setting the PriceStep 3: Estimating Costs
    Types of Costs
    Fixed Costs – costs that do not vary with level of production
    Variable Costs – costs that vary with level of production
    Total Costs – sum of fixed and variable costs at any level of production
    Average Costs – cost per unit at that level of production
    Accumulated Production
    Concept of Learning/Experience curve
    With more experience, costs come down
    Its not only for manufacturing costs but also for otherslike marketing costs etc
    Needs to be used carefully particularly vis-à-vis competitors
    ABC Cost Accounting
    Every activity is accounted for
    Costs are analyzed for different consumers, retailersand assigned to them
    Target Costing
    Establishing product functions and price at which it will sell using market research
    Then, target costing with production team(s) to achieve that level
    MG 220 Marketing Management
    6
  • 7. Setting the PriceStep 4: Analyzing Competitors’ costs, prices & offers
    Review & Analyze Competitors’ costs
    Competitors’ Prices & Offers
    MG 220 Marketing Management
    7
  • 8. Setting the PriceStep 5: Selecting a Pricing Method
    Three Cs
    Customers’ Demand schedule
    Cost Function
    Competitors’ prices
    FLOOR Costs
    CEILING Customers’ assessment
    STARTING POINT Competitors’ prices (& prices of substitutes)
    Six different methods used
    Markup pricing
    Target-Return Pricing
    Perceived Value Pricing
    Value Pricing
    Going-Rate Price
    Auction-type Pricing
    MG 220 Marketing Management
    8
  • 9. Setting the PriceStep 5: Selecting a Pricing Method (…contd.)
    Six different methods used
    Markup pricing
    Add markup to costs | Most simple | Ignores several key factors like competitors, perceived image
    Target-Return Pricing
    ROI target is established and is used to achieve at a price
    Break-even level has to be established
    Book’s example
    Perceived Value Pricing
    Companies base their price on customer’s perceived value
    Key is to deliver more value than competitors and demonstrate it
    Value Pricing
    Lowering pricing on high-quality offerings
    Requies re-engineering to become a low-cost producer
    Going-Rate Price
    Prices are based largely on competitors prices
    Auction-type Pricing
    Types: English (Ascending) | Dutch (Descending) | Sealed bid
    MG 220 Marketing Management
    9
  • 10. Setting the PriceStep 6: Selecting the Final Price
    Impact of other Marketing Activities
    Studies showed that brands with higher advertising budgets were able to charge premium
    Consumers paid more for ‘known’ brands than ‘unknown’ ones
    Impact of Price on other parties
    Reaction of other stakeholders
    Particularly distributors, dealers as their profits (earnings) are dependent on company’s pricing
    How will competitors’ react?
    MG 220 Marketing Management
    10
  • 11. Adapting the Price
    Geographical Pricing
    Several considerations
    Should there be different prices to ‘distant’ customers to cover extra logistics’ costs
    How to accept payments
    Countertrade – Offering payment in other items than cash
    Different forms:
    Barter
    Compensation Deal
    Buyback arrangement
    Offset
    Price Discounts & Allowances
    Cash Discount
    Quantity Discount
    Functional Discount
    Seasonal Discount
    Allowance
    MG 220 Marketing Management
    11
  • 12. Adapting the Price
    Promotional Pricing
    Loss-leader pricing
    Special-even pricing
    Cash rebates
    Low-interest financing
    Longer payment terms
    Warranties and service contracts
    Psychological discounting
    Differentiated Pricing
    MG 220 Marketing Management
    12
  • 13. Initiating & Responding to Price Changes
    NOT INCLUDED IN COURSE
    MG 220 Marketing Management
    13
  • 14. Part 6:Delivering Value
    > Marketing Channels and Value Networks
    > The Role of Marketing Channels: SKIM
    > Channel-Design decisions
    > Channel-Management decisions: SKIM
    > Channel integration and systems: SKIM
    > E-Commerce Marketing Practices: SKIM
    Class Presentation | Session 25 | 10 Nov 2010