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- 1. INITIATING AND RESPONDING TOPRICE CHANGESDr. Maimoon sulthan
- 2. INITIATING AND RESPONDINGTO PRICE CHANGES Initiating price cuts Initiating price increases Anticipating competitive responses Responding to competitors price changes
- 3. INITIATING PRICE CUTS Excess plant capacity Drive to dominate the market through lower costs. Starts lower than its competitors or initiates price cuts to gain market share Encourages customers to demand price concessions
- 4. TRAPS Low qualitytrap Consumers assume quality is low Fragile-market-share trap No market loyalty. Customers shift to any other low-priced firm Shallow-pockets trap Higher priced competitors have longer staying powers because of deep cash reserves Price-war trap Competitors respond by lowering prices even more- price war
- 5. INITIATING PRICE INCREASE A successful price increase can raise profits considerably. Cost inflation provokes price increase Anticipatory pricing Companies often raise the prices more than the cost increase ,in anticipation of further inflation or government controls over demand when a company cannot supply all its customers
- 6. WAYS OF INCREASINGPRICE • Final price not set until production finished • Long production lead times like industrial construction and heavy equipments Delayed quotation pricing • Today’s price plus all or part of any inflation before delivery • Contracts, aircrafts, bridge Escalator clauses • Maintains price but removes or prices separately previous offers • Delivery, installations, GPS Unbundling • Not offering its normal cash and quantity discountsReduction of discounts
- 7. Product customization anddifferentiation
- 8. To avoid stickershock Giving advance notice Making low-visibility price moves Eliminating discounts Increasing minimum order sizes Contracts- escalator clauses
- 9. Anticipating competitive responses Price changes provokes competitors response when the number of firms is few Homogenous products Buyers highly informed Competitor responses market share objective- match price differences Profit-maximization objective- advertising, product quality
- 11. Responding to competitors’price changes Product’s stage in the life cycle Importance in the company’s portfolio Competitors intention and resources Market’s price Quality sensitivity Cost Company’s alternative opportunities
- 12. Homogeneous Non-homogenous Enhance product/reduce price If Price increase will not benefit industry, others may not increase price Price leader has to roll back the increase Why the price change Temporary or permanent Market share and profit in case of non response Competitors and other firms reaction
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- 14. Responses to low-costcompetitors Further differentiation of product or service Introducing a low-cost venture Reinvent as a low-cost player Extended analysis is not always possible so anticipate possible price changes an prepare contingent response