Market Pricing


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Market Pricing

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Market Pricing

  1. 1. MARKET PRICING Prepared by: GREGAR DONAVEN E. VALDEHUEZA, MBA Lourdes College Instructor
  2. 2. Learning Objectives <ul><li>Identifies the different factors influencing pricing. </li></ul><ul><li>Comprehends the considerations in pricing analysis. </li></ul><ul><li>Differentiates the pricing models base on their significance. </li></ul><ul><li>Illustrate the supply chain in discounted pricing. </li></ul>
  3. 3. Several Factors Influence Pricing <ul><li>Strategic goals </li></ul><ul><li>Demand of the products </li></ul><ul><li>Competitor pricing </li></ul>
  4. 4. Considerations in Pricing Analysis <ul><li>Is your business recouping your costs (time, money, materials, etc.) to provide it? </li></ul><ul><li>Is it affordable to customers? </li></ul><ul><li>What about volume or other forms of discounts? </li></ul><ul><li>What should be the new prices, if any? </li></ul><ul><li>How do you know? </li></ul>
  5. 5. Pricing Models <ul><li>Cost Plus </li></ul><ul><ul><ul><li>A predetermined margin ( an amount beyond the minimum necessary ) was added to product cost to form the price. </li></ul></ul></ul>
  6. 6. <ul><li>Advantages </li></ul><ul><ul><ul><li>Easy to calculate </li></ul></ul></ul><ul><ul><ul><li>Minimal information requirements </li></ul></ul></ul><ul><ul><ul><li>Easy to administer </li></ul></ul></ul><ul><ul><ul><li>Tends to stabilize markets – insulated from demand variations and competitive factors </li></ul></ul></ul><ul><ul><ul><li>Ensures seller against unpredictable, or unexpected later costs </li></ul></ul></ul><ul><ul><ul><li>Ethical advantages (just price – set standards of fairness in transaction) </li></ul></ul></ul><ul><li>Disadvantages </li></ul><ul><ul><ul><li>Provides no incentive for efficiency </li></ul></ul></ul><ul><ul><ul><li>Tends to ignore the role of consumers </li></ul></ul></ul><ul><ul><ul><li>Tends to ignore the role of competitors </li></ul></ul></ul><ul><ul><ul><li>Use of historical accounting costs rather than replacement value </li></ul></ul></ul><ul><ul><ul><li>Use of “normal” or “standard” output level to allocate fixed costs </li></ul></ul></ul><ul><ul><ul><li>Inclusion of sunk costs rather than just using incremental (marginal) costs </li></ul></ul></ul><ul><ul><ul><li>Ignores opportunity costs </li></ul></ul></ul><ul><ul><ul><li>Contractors may not focus on performance because the cost is always covered by the client </li></ul></ul></ul>
  7. 7. <ul><li>Market Pricing </li></ul><ul><ul><ul><li>Involves establishing the value of the market and its trends, the unit prices being paid within the market, finding a credible position within that range which is consistent with your offering and your strategy, and deducing the margins and volumes which should be available from different channels into the market. </li></ul></ul></ul>
  8. 8. Options of Market Pricing <ul><li>Backward Pricing (Demand-Backward Pricing) </li></ul><ul><ul><ul><li>Method in which costs are deducted from what consumers are willing to pay, to see if an adequate profit margin is possible. </li></ul></ul></ul><ul><li>Psychological Pricing </li></ul><ul><ul><ul><li>Setting prices according to the psychographics ( analysis of consumer lifestyles to create a detailed customer profile ) of the aimed-at market segment. </li></ul></ul></ul><ul><li>Price Lining or Product Line Pricing </li></ul><ul><ul><ul><li>Method that primarily uses price to create the separation between the different models. </li></ul></ul></ul>
  9. 9. Fictional Example of Backward/Discounted Pricing <ul><li>Assume you are the manufacturer and you are going to want to supply this globally via retail outlets and retailing catalogues , duty free outlets and via distributors selling other items . Each step the product makes must make a margin to cover that steps distribution and logistics costs etc. </li></ul><ul><li>Example route to an overseas market into retail outlets. </li></ul><ul><li>Starting at the end customer who buys from retailer for the RRP of $200, the retailer whose revenue is $200 per unit sold buys from a wholesaler at a 50% discount off RRP or RRP$200 x 0.5 = $100 leaving the retailer a margin $100 per unit sold above purchase cost to cover their costs of selling and logistics with their multiple local stores. </li></ul><ul><li>The wholesaler who gets $100 total revenue per unit sold to retailers, buys from import/export sales agent expecting to make a 20% margin (less because they are handling in bulk and logistics are therefore simplified), buys at $80 each from the import/export sales agent making $20 each to cover their costs. </li></ul>
  10. 10. <ul><li>The import/export sales agent who makes $80 revenue each when selling to wholesalers, buys the unit direct from the manufacturer expecting to make a 15% margin because of their extensive links with wholesalers in the target country but minimal logistics, they buy at $80 x 0.85 = $68 each. </li></ul><ul><li>So having researched and established this route to that market for this product the manufacturer can plan to expect that &quot;import/export sales agents&quot; be offered terms equivalent to $68 of the RRP of $200 which could be described as &quot;0.34 of RRP&quot; or a 66% discount off RRP. </li></ul><ul><li>Note: The Manufacturer will know that to sell through that channel they can expect to get $68 each for these Mid range Hi-fi system which end customers like you or I pay the RRP of $200 each for in the shops. (these figures are made up for example purposes, I have no idea what the relative margins are in this particular market) . </li></ul>
  11. 11. <ul><li>If the direct costs associated with making this product are parts $25, labour $10, plus direct tooling and machinery capital writing down costs of $5 per unit making a total product (production) specific unit cost of $40, the manufacturer will make a gross margin of $28 per unit or 28/68 = a 41% margin. </li></ul><ul><li>From this 41% margin, $28 per unit, the manufacturer must be able fund all their fixed costs including management and administration, production management, development engineering, their own sales and marketing efforts, buildings, etc. </li></ul>
  12. 12. <ul><li>Competitive Pricing </li></ul><ul><ul><ul><li>basing pricing decisions on how competitors are setting their price . </li></ul></ul></ul>
  13. 13. Options of Competitive Pricing <ul><li>Below Competition Pricing </li></ul><ul><ul><ul><li>A marketer attempting to reach objectives that require high sales levels (e.g., market share objective) may monitor the market to ensure their price remains below competitors. </li></ul></ul></ul><ul><li>Above Competition Pricing </li></ul><ul><ul><ul><li>Marketers using this approach are likely to be perceived as market leaders in terms of product features, brand image or other characteristics that support a price that is higher than what competitors offer. </li></ul></ul></ul><ul><li>Parity Pricing </li></ul><ul><ul><ul><li>A simple method for setting the initial price at the same level of competitors’ price. </li></ul></ul></ul>
  14. 14. References <ul><li> </li></ul><ul><li> </li></ul><ul><li> </li></ul><ul><li> </li></ul>
  15. 15. GOOD DAY!!! 