2. Topics
1) Elements of Pricing
2) Approaches
3) What a Price should do
4) Terminology
5) Nine laws of price sensitivity and consumer psychology
6) Methods
1
3. Should
prices
change
in
various
geographical
areas,
referred
to
as
?
How important are customer price sensitivity (e.g. "sticker shock") and elasticity issues?
How much to charge for a product or service?
This question is a typical starting point for discussions about pricing,
however,
a better question for a vendor to ask is
“How much do customers value the products, services, and other intangibles
that the vendor provides.“
Do price points already exist for the product category?
The price floor is determined by production factors like costs (often
only variable costs are taken into account), economies of scale,
marginal cost, and degree of operating leverage
Are there transfer pricing considerations?
How visible should the price be? - Should the price be neutral? (i.e.: not an important differentiating factor),
should it be highly visible? (to help promote a low priced economy product, or to reinforce the prestige image of a quality
product),
or should it be hidden? (so as to allow marketers to generate interest in the product unhindered by price considerations).
Are there joint product pricing considerations?
What sort of payments should be accepted? (cash, check, credit card, barter)
2
4. 3 Levels of approaching to Pricing
• The overall economics of the industry, including
supplier price changes and customer demand
changes
Industry
• The competitive position of the price
in comparison to the value differential of the
product to that of comparative competing products
Market
• Managing the implementation of discounts away
from the reference, or list price, which occur both
on and off the invoice or receipt
Transaction
3
5. Achieve the financial GOALS of the company (i.e. profitability)
Fit the REALITIES of the marketplace (Will customers buy at that price?)
Support a product's Positioning and be consistent with the other variables in
the Marketing Mix
A low cost price can be a for product quality,
effective promotions, or an energetic selling effort by distributors
4
Price is influenced by the type of used,
the type of used,
and the of the product
Price will usually need to be relatively high
if Distribution is expensive,
The product is supported by extensive advertising and
Manufacturing is exclusive
7. “The Strategy and Tactics of Pricing” Book,Thomas Nagle and Reed Holden
1. Reference price effect
2. Difficult comparison effect
3. Switching costs effect
4. Price-quality effect
5. Expenditure effect
6. End-benefit effect
7. Shared-cost effect
8. Fairness effect
9. Framing effect
Price Sensivity By
The product’s price relative to perceived alternatives is higher…
When they don’t have difficulty comparing it to potential alternatives…
The product-specific investment a buyer must make to switch suppliers is little…
Higher prices don’t signal higher quality…
The expense accounts for a large percentage of buyers’ available income or budget…
The effect refers to the relationship a given purchase has to a larger overall benefit
The bigger the portion of the purchase price buyers must pay for themselves…
The price not what they perceive as “fair” or “reasonable” given the purchase context…
when they perceive the price as a loss rather than a forgone gain
when the price is paid separately rather than as part of a bundle.
6
8. Solutions for reducing sensivity or Elasticity
Good
comparison with
alternatives
Information
Ambiguity
Loyalty Programs
Appropriateness
of Q & P
Good Customer
Targeting
Honesty Uniqueness
7
9. 8
1. Cost the limit of price
2. Group buy
3. Options pricing
4. Pay what you want
5. Price elasticity of demand
6. Price system
7. Price umbrella
8. Product life cycle management
9. Product sabotage
10. Psychological pricing
11. Purchasing power
12. Suggested retail price
13. Target pricing
14. Time-based pricing
15. Value pricing
