2. 11-2
Strategic Role of
Price
Analyzing the
Pricing Situation
Selecting the Pricing
Strategy
Determining Specific
Prices and Policies
PRICING STRATEGY
AND MANAGEMENT
3. 11-3
Pricing Decisions are
Creating Major
Challenges for Many
Companies
Examples Include:
Threats to major airlines by
discount carriers.
Pressures on drug companies
to reduce prices.
Intense price competition on
supermarket chains by
Wal- Mart and Costco.
Aggressive discounting by
U.S. automobile producers
to retain market share.
Threats to strong brands by
counterfeit products.
4. 11-4
Part of the reason that pricing
is misused and poorly
understood is the common
practice of making it the last
marketing decision. We think
that we must design products,
communications plans, and a
method of distribution before
we have something to price.
We then use pricing tactically to
capture whatever value we can.
T.Nagle, Marketing News, 11/9/98, 4.
STRATEGIC ROLE OF
PRICE
5. 11-5
…requires that we put pricing at
the beginning of the process. For
example, a multi-part marketing
strategy usually is required in
value-based pricing. Airlines’
complicated service packages with
arcane restrictions, and their
multiple channels of distribution
must support pricing that reflects
different values of the service to
different segments. Without such
a strategy, airlines would capture a
much smaller portion of the value
they have the potential to create.
T. Nagle, Marketing News, 11/9/98, 4.
Pricing Strategically
6. 11-6
How Price Fits into the
Positioning Strategy
Positioning Strategy
Product
strategy
Target
market and
objectives
Value-Chain
strategy
Pricing
strategy
Promotion
strategy
7. 11-7
Pricing Situations
New product pricing
Life cycle pricing
Positioning strategy
change
Countering
competitive threats
8. 11-8
Role of Price in
Positioning Strategy
Signal
to the
Buyer
Instrument
of
Competition
Improving
Financial
Performance
Marketing
Program
Consideration
s
9. 11-9
Pricing Strategy for
New and Existing
Products
Set Pricing
Objectives
Analyze the
Pricing Situation
Select Pricing
Strategy
Determine Specific
Prices and Policies
10. 11-10
Examples of Pricing
Objectives
Gain market position
Achieve financial
performance
Product positioning
Stimulate demand
Influence competition
12. 11-12
Customer Price
Sensitivity
1. How large is the product-market
in terms of buying potential?
2. What are the market segments
and what market target strategy
is to be used?
3. How sensitive is demand in the
segment(s) to changes in price?
4. How important are nonprice
factors, such as features and
performance?
5. What are the estimated sales at
different price levels?
13. 11-13
Buyers’ Perceptions of Value Offerings
of Brands A-E
Perceived
Value
Perceived Price
Superior Value Zone
D A
C
E
B
Inferior Value Zone
14. 11-14
Guide to Cost
Analysis
Determine cost
structure
A
Analyze cost and
volume relationships
B
Analyze competitive
advantage
C
Estimate the effect
of experience on costs
D
Determine the extent
of control over costs
E
15. 11-15
Competitor Analysis
Which firms represent the
most direct competition
Competitor’s positioning on a
relative price basis
How active is price in their
marketing strategies
Competitors’ success with
their pricing strategies
Competitors’ probable
responses to alternative price
strategies
16. 11-16
Pricing Pressures in the
Personal Computer
Market
The personal computer market offers an
interesting look at the effects of intense
competition. Dell, Inc. continually looks to
lower its operating expenses in an effort to
pass savings to customers. The result over
time has enabled Dell to profitably grow at a
multiple of the industry, which has had a
negative effect on companies such as
Hewlett-Packard Co. The pricing pressure on
rivals is one of the reasons that led to the
merger between Compaq Computer and H-P.
The aggressive price competition resulted in
H-P’s PC unit reporting a loss in 3rd
Quarter
2003. A major competitive hurdle for H-P is
Dell’s low-cost direct-sales business model.
Sources: “A Nasty Surprise from HP,” Business Week, September 1, 2003; Gary McWilliams and Pui-Wing
Tam, “Dell Price Cuts Put a Squeeze on Rival H-P,” The Wall Street Journal, August 21, 2003, B1 and B7.
18. 11-18
SELECTING THE
PRICING STRATEGY
How much flexibility
exists?
How to position price
relative to costs?
How visible to make the
price of the product?
20. 11-20
Price too high;
little or no
demand
Price Floor
Price
Ceiling
Nature of demand in target
market
Business and marketing
strategy
Product differentiation
Competitors’ prices
Prices of substitutes
Product costs
Rangeoffeasibleprices
Price too low; no profit possible
How Much Flexibility
Exists?
26. 11-26
Establishing Pricing
Policy and Structure
Policy
Discounts, allowances,
returns, and other
operating guidelines
Pricing Structure
Product mix and line
pricing relationships
How individual items in
the line are priced in
relation to one another
