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Chapter 10

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Chapter 10

  1. 1. CHAPTER 10 DISCUSSION QUESTIONS 1) State & summarize the 3 forces of pricing. 2) Explain what customized or dynamic pricing is. 3) Explain the 3 objectives for establishing a new product's price. 4) Explain the 3 basic strategies for establishing a new product's price.
  2. 2. 3 FORCES OF PRICING
  3. 3. 1) PRICE CONVEYS IMAGE -CUSTOMERS LOOK AT PRICES TO DETERMINE WHAT TYPE OF BUSINESS THEY ARE DEALING WITH. -HIGH PRICES CONVEY: 1) QUALITY 2) PRESTIGE 3) UNIQUENESS -ONLY 15-35% OF CUSTOMERS CONSIDER PRICE TO BE THE CHIEF CRITERION WHEN SELECTING A PRODUCT/SERVICE. -CUSTOMERS ARE WILLING TO PAY FOR: 1) EXTRA VALUE 2) CONVENIENCE 3) SERVICE 4) QUALITY
  4. 4. A WELL CHOSEN PRICE SHOULD DO 3 THINGS 1) ACHIEVE THE FINANCIAL GOALS OF THE COMPANY. -WILL THE PRICE LEAD TO PROFITABILITY? 2) FIT THE REALITIES OF THE MARKETPLACE. -WILL CUSTOMERS BY AT THAT PRICE? 3) SUPPORT A PRODUCT’S POSITIONING. -IS THE PRICE CONSISTENT WITH THE BRAND?
  5. 5. <ul><li>2) COMPETITION & PRICING </li></ul><ul><li>TWO FACTORS WHEN TAKING COMPETITION INTO ACCOUNT FOR A PRICING STRATEGY </li></ul><ul><li>THE LOCATION OF THE COMPETITORS. </li></ul><ul><li>THE NATURE OF THE COMPETING GOODS & SERVICES. </li></ul>
  6. 6. 3) FOCUS ON VALUE -THE “RIGHT” PRICE FOR A PRODUCT/SERVICE DEPENDS ON 1 FACTOR: -THE VALUE THAT IT PROVIDES FOR A CUSTOMER. -2 ASPECTS OF VALUE: 1) OBJECTIVE VALUE -THE PRICE CUSTOMERS WOULD BE WILLING TO PAY IF THEY UNERSTOOD PERFECTLY THE BENEFITS THAT A PRODUCT/SERVICE DELIVERS FOR THEM. 2) PERCEIVED VALUE -THE CUSTOMER’S OPINION OF A PRODUCT’S/SERVICE’S VALUE TO HIM/HER COMPARED TO PRICE.
  7. 8. INTRODUCING A NEW PRODUCT THE 3 OBJECTIVES THAT SHOULD BE SATISFIED WHEN PRICING ANY NEW PRODUCT.
  8. 9. 1) GETTING THE PRODUCT ACCEPTED -NO MATTER HOW UNUSUAL A PRODUCT IS, ITS PRICE MUST BE ACCEPTABLE TO A COMPANY’S POTENTIAL CUSTOMERS. -THE ACCEPTABLE PRICE RANGE FOR A NEW PRODUCT DEPENDS ON THE PRODUCT’S POSITION. 1) REVOLUTIONARY PRODUCTS -PRODUCTS ARE SO NEW & UNIQUE THAT THEY TRANSFORM EXISTING MARKETS. THE PRICE RANGE TENDS TO BE WIDE. 2) EVOLUTIONARY PRODUCTS -PRODUCTS THAT OFFER UPGRADES & ENHANCEMENTS TO EXISTING PRODUCTS. PRICE RANGE IS NOT AS WIDE AS REVOLUTIONARY PRODUCTS. 3) ME-TOO PRODUCTS -PRODUCTS THAT OFFER THE SAME BASIC FEATURES AS EXISTING PRODUCTS ON THE MARKET. PRICE RANGE IS NARROW.
  9. 10. REVOLUTIONARY PRODUCTS
  10. 11. EVOLUTIONARY PRODUCTS
  11. 12. ME-TOO PRODUCTS
  12. 13. 2) MAINTAINING MARKET SHARE AS COMPETITION GROWS -AS COMPETITORS ENTER THE MARKET, THE COMPANY MUST WORK TO EXPAND OR AT LEAST MAINTAIN ITS MAKET SHARE. -CONTINUOUSLY REAPPRAISING THE PRODUCT’S PRICE HELPS TO RETAIN A SATISFACTORY MARKET SHARE. 3) EARNING A PROFIT -MUST ESTABLISH PRICE FOR A PRODUCT HIGHER THAN ITS COST. -CANNOT UNDERPRICE: MUCH EASIER TO LOWER A PRICE THAN INCREASE ONCE THE PRODUCT IS ON THE MARKET.
  13. 14. 3 BASIC STRATEGIES FOR ESTABLISHING A NEW PRODUCT’S PRICE
  14. 15. 1) MARKET PENETRATION -TO GAIN QUICK ACCEPTANCE & EXTENSIVE DISTRIBUTION IN THE MASS MARKET, COMPANIES SHOULD CONSIDER INTRODUCING THE PRODUCT AT A LOW PRICE. 2) SKIMMING -A COMPANY USES A HIGHER-THAN-NORMAL PRICE IN AN EFFORT TO QUICKLY RECOVER THE INITIAL DEVELOPMENTAL & PROMOTIONAL COSTS OF THE PRODUCT. 3) SLIDING DOWN THE DEMAND CURVE -A COMPANY INTRODUCES THE PRODUCT AT A HIGH PRICE, THEN LOWERS THE PRICE DUE TO TECHNOLOGICAL ADVANCES LOWERING ITS COSTS BEFORE ITS COMPETITION CAN.

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