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Cd6813 price

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ini semua slide marketing strategik kelas sabtu ukm semester 1 2010/2011

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Cd6813 price

  1. 1. rental, fee, interest, toll, premium,rental, fee, interest, toll, premium, commission, royalty,commission, royalty, briberybribery……..……..
  2. 2. PRICEPRICE is directlyis directly related to revenuerelated to revenue generatinggenerating
  3. 3. Prices are difficult to set – to determine a profitable but justifiable (fair) price.
  4. 4. Ceiling PriceCeiling Price Floor PriceFloor Price
  5. 5. Ceiling PriceCeiling Price Perceived-ValuePerceived-Value Floor PriceFloor Price CostCost
  6. 6. PRICINGPRICING 1.Selecting Pricing ObjectiveObjective 2.Determining the DemandDemand 3.Estimating CostsCosts 4.Analyzing Competitor’sCompetitor’s Offerings, Costs, & Prices 5.Choosing A Pricing ApproachApproach 6.Determining Final PriceFinal Price
  7. 7. PRICING 1.Selecting Pricing ObjectiveObjective Survival Maximum Market Share Product Quality Leadership Maximize Current Profit Maximum Market Skimming Maximum Market Penetration
  8. 8. PRICING 1.Selecting Pricing ObjectiveObjective Survival Low PriceLow Price Cover all variable costs and part of fix costs Maximum Market Share Product Quality Leadership Maximize Current Profit Maximum Market Skimming Maximum Market Penetration
  9. 9. PRICING 1.Selecting Pricing ObjectiveObjective Survival Low PriceLow Price Cover all variable costs and part of fix costs Maximum Market Share Low PriceLow Price Mkt leader enjoys lower costs and high profits in long run Product Quality Leadership Maximize Current Profit Maximum Market Skimming Maximum Market Penetration
  10. 10. PRICING 1.Selecting Pricing ObjectiveObjective Survival Low PriceLow Price Cover all variable costs and part of fix costs Maximum Market Share Low PriceLow Price Mkt leader enjoys lower costs and high profits in long run Product Quality Leadership High PriceHigh Price Maximize Current Profit Maximum Market Skimming Maximum Market Penetration
  11. 11. PRICING 1.Selecting Pricing ObjectiveObjective Survival Low PriceLow Price Cover all variable costs and part of fix costs Maximum Market Share Low PriceLow Price Mkt leader enjoys lower costs and high profits in long run Product Quality Leadership High PriceHigh Price Maximize Current Profit Based on Demand and CostsBased on Demand and Costs Maximum Market Skimming Maximum Market Penetration
  12. 12. PRICING 1.Selecting Pricing ObjectiveObjective Survival Low PriceLow Price Cover all variable costs and part of fix costs Maximum Market Share Low PriceLow Price Mkt leader enjoys lower costs and high profits in long run Product Quality Leadership High PriceHigh Price Maximize Current Profit Based on Demand and CostsBased on Demand and Costs Maximum Market Skimming High Introductory PriceHigh Introductory Price Maximum Market Penetration
  13. 13. PRICING 1.Selecting Pricing ObjectiveObjective Survival Low PriceLow Price Cover all variable costs and part of fix costs Maximum Market Share Low PriceLow Price Mkt leader enjoys lower costs and high profits in long run Product Quality Leadership High PriceHigh Price Maximize Current Profit Based on Demand and CostsBased on Demand and Costs Maximum Market Skimming High Introductory PriceHigh Introductory Price Maximum Market Penetration Low Introductory PriceLow Introductory Price
  14. 14. PRICING 2.Determining the DemandDemand - Refer your economic papers - Price sensitivity Consumers are less price sensitive: *distinctive products *consumer not that aware of substitute *products are used together with other assets previously bought *the product is assumed to have more quality, prestige or exclusiveness
  15. 15. PRICING 2.Determining the DemandDemand Most are price-sensitive to expensive or frequent-buy products
  16. 16. PRICING 3. Estimating CostsCosts Price should covers all ________, _______________, _______ and ______ costs as well as generates reasonable _____ for the efforts and risks involved.
  17. 17. PRICING 3. Estimating CostsCosts Price should covers all productionproduction,, distributiondistribution and sellingselling costs as well as generates reasonable returnreturn for the efforts and risks involved.
  18. 18. PRICING 4.Analyzing Competitor’sCompetitor’s Offerings, Costs, & Prices If firm offersoffers specific attributes not offered by immediate competitors, the value of the attributes to consumers should be assessed and be __________ to the firm’s price.
  19. 19. PRICING 4.Analyzing Competitor’sCompetitor’s Offerings, Costs, & Prices If firm offersoffers specific attributes not offered by immediate competitors, the value of the attributes to consumers should be assessed and be addedadded to the firm’s price.
  20. 20. PRICING 4.Analyzing Competitor’sCompetitor’s Offerings, Costs, & Prices If firm does not offernot offer specific attributes offered by immediate competitors, the value of the attributes to consumers should be assessed and be __________ to the firm’s price.
  21. 21. PRICING 4.Analyzing Competitor’sCompetitor’s Offerings, Costs, & Prices If firm does notnot offer specific attributes offered by immediate competitors, the value of the attributes to consumers should be assessed and be deducteddeducted to the firm’s price.
  22. 22. PRICING 5.Choosing A Pricing ApproachApproach
  23. 23. PRICING 5.Choosing A Pricing ApproachApproach COST-BASED PRICING - Mark-up Pricing - Target-Return Pricing
  24. 24. Setting the Price - Step 5: Choosing a Pricing Method • MARKUP PRICING = product’s cost + a standard markupproduct’s cost + a standard markup • Ignores demand, value & competition • Why is is popular? I. Costs easier to estimate than demand II. Prices similar if all firms use method III. Viewed as fair to both seller & buyer
  25. 25. PRICING 5.Choosing A Pricing ApproachApproach - Mark-up Pricing unit cost/(1-return on sale) Variable cost per unit $10 Fixed cost $300,000 Expected unit sales 50,000 Desired return on sales 20% Unit cost =Var cost +(fixed cost/unit sales) =10 +(300,000/50,000) =$16 Mark-up pricing: =16/(1-0.2) =$20
  26. 26. Setting the Price - Step 5: Choosing a Pricing Method TARGET-RETURN PRICING: • Firm determines the price that would yield its target rate of return on investment (ROI) • Ignores price elasticity & competitors’ prices = RM 16 + 0.2 X 1,000,000 --------------------- 50,000 = RM 20 f sales do not reach 50,000 units? e a break-even chart to learn what happen to other sa
  27. 27. Break-Even Chart for Determining Target-Return Price and Break-Even Volume
  28. 28. Setting the Price - Step 5: Choosing a Pricing Method TARGET-RETURN PRICING: RM 300,000 -------------------------- = 30,000 RM 20 – RM 10
  29. 29. PRICING 5.Choosing A Pricing ApproachApproach VALUE-BASED PRICING - High Value or Premium Pricing high V or Q -high P - Economy Pricing lowV or Q -lowP - Value Pricing: (i)EDLP and (ii)High-Low Pricing high V or Q -lowP
  30. 30. VALUE PRICING: • Fairly low price for high-quality offering • Redo operations: low-cost, same-quality • Everyday low pricing (EDLP): constant low price with little/no promotions • Constant promotions costly & erode confidence in credibility of everyday prices
  31. 31. Setting the Price - Step 5: Selecting a Pricing Method • High-low pricing: high everyday prices but frequent promotions where prices are lower than EDLP
  32. 32. PRICING 5.Choosing A Pricing ApproachApproach COMPETITION-BASED PRICING - Going-rate Pricing Setting a price based largely on following competitors’ actual prices. - Sealed-bid Pricing Setting a price based on howthe firm thinks the competitors will price.
  33. 33. • Geographical Pricing • Discounts and Allowances • Promotional Pricing • Differentiated Pricing
  34. 34. GEOGRAPHIC CONSIDERATIONS FOB Pricing FOB (Free on board) Plant or FOB Origin Prices include no shipping charges Buyers must pay all freight charges to transport the product from the manufacturer’s loading dock Legal title and responsibility pass to buyer after the seller’s employees load the purchase and get a receipt FOB Origin-freight Allowed or Freight Absorbed Permit buyers to subtract transportation expenses from their bills.
  35. 35. Uniform-Delivered Pricing All buyers are quoted the same price, including transportation expenses The price quoted includes a transportation charge averaged over all the firm’s customers. Meaning that distant customers actually pay a smaller share of shipping costs while nearby customer pay what is known as “phantom freight” – the amount by which the average transportation charge exceeds the actual cost of shipping.
  36. 36. Zone Pricing Market is divided into geographic regions and a different price is set in each region Basing-Point Pricing Includes the list price at the factory plus freight charges from the basing-point city nearest the buyer Specifies a location from which freight charges are calculated – not necessarily the point from which the goods are actually shipped
  37. 37. Table 14.3 Price Discounts and Allowances
  38. 38. Adapting the Price - Promotional Pricing • Techniques to stimulate early purchase: 1.Loss-leader pricing 2.Special-event pricing 3.Cash rebates 4.Low-interest financing 5.Longer payment terms 6.Warranties and service contracts 7.Psychological discounting • Promotional-pricing strategy: zero-sum game
  39. 39. Adapting the Price - Differentiated Pricing • Price discrimination: product/service sold at 2 or more prices that do not reflect proportional difference in costs • 1st-degree: separate price to each customer depending on demand intensity • 2nd-degree: charges less to buyers who buy a larger volume • 3rd-degree: charges different amounts to different classes of buyers
  40. 40. Adapting the Price - Differentiated Pricing 3rd -degree price discrimination • Customer-segment • Product-form • Image • Channel • Location • Time Yield pricing: • discounted but limited early purchases, • higher-priced late purchases & • lowest rates on unsold inventory just before it expires
  41. 41. Adapting the Price - Differentiated Pricing Conditions for Price Differentiation: I. Market segmentable & each have different demand intensities II.Low-price segment cannot resell to high-price III.Competitors cannot undersell in higher price segment IV.Segmenting costs not > extra revenue derived Do not lead to customer resentment & ill will V.Must not be illegal
  42. 42. • Product-Line Pricing • Optional-Feature Pricing • Captive Product Pricing • Two-Part Pricing • By-Product Pricing • Product-Bundling Pricing
  43. 43. PRICING STRATEGIES: 1. Skimming Pricing Strategy The intentional setting of a relatively high price compared with the prices of competing products Commonly used for distinctive goods with little or no initial competition When the supply begins to exceed demand, or when competition catches up, the high price is dropped
  44. 44. 2. Penetration Pricing Strategy Price products noticeably lower than competing products when enter new industries (with many competing products) Once the product achieves some market recognition through consumer trial purchases stimulated by its low price, marketers may increase the price to the level of competing products Everyday Low Pricing - closely related to penetration pricing - a strategy devoted to continuous low prices as opposed to relying on short-term price- cutting tactics
  45. 45. 3. Competitive Pricing Strategy Matching other firms’ price In industries with relatively homogeneous products, competitors must match each other’s price reduction to maintain market share and remain competitive When companies continually match each other’s prices, prices can really drop
  46. 46. PRICING POLICIES 1. PSYCHOLOGICAL PRICING based on the belief that certain prices or price ranges make a good or service more appealing than others to buyers Odd Pricing Set prices at odd numbers just under round numbers. Many people assume that a price of RM2.95 appeals more strongly to consumers than RM3.00, supposedly because buyers interpret it as RM2.00 plus. RM499 instead of RM500
  47. 47. 2. PRODUCT-LINE PRICING Setting a limited number of prices for a selection of merchandise (in a product line) TV Sony 12’, 14’, 19’, 29’, 31’ If the price difference between two model is small, buyers will choose the more advanced model and vice versa. 3. PROMOTIONAL PRICING A lower than normal price is used as a temporary ingredient in a firm’s marketing strategy To increase sales volume in short term such as for special events Loss Leader Pricing Goods priced below cost to attract customers to the outlets, with hopes that these buyers will also buys other regular priced products.
  48. 48. COMPETITIVE BIDDING Inviting potential suppliers to quote prices on proposed purchases or contracts Detailed specifications describe the good/service that the organization wishes to acquire. Set the price based on the assumptions of competitor’s prices If the price is set too high – might not get the tender If the price is set too low – might not be profitable
  49. 49. DEVELOPING Pricing Strategies & Programs Chapter 14
  50. 50. Setting the Price - Step 1: Selecting the Pricing Objective • Firm can pursue any of 5 objectives through pricing: 1.SURVIVAL: when plagued with overcapacity, intense competition or changing consumer wants 2.MAXIMUM CURRENT PROFIT: choose price that gives maximum profit or cash flow
  51. 51. Setting the Price - Step 1: Selecting the Pricing Objective 3. MAXIMUM MARKET SHARE: believe that higher sales will lower costs & higher profit - Set lowest price – Conditions that favor low price i. Market highly price sensitive ii. Costs fall with more production iii. Low price discourage competition
  52. 52. Setting the Price - Step 1: Selecting the Pricing Objective 4. MAXIMUM MARKET SKIMMING: usually favored by firms with a new technology  Price start high & lowered in time  Conditions: i. Sufficient buyers with high demand ii. Unit costs of small volume not too high iii. High price do not attract competitors iv. High price indicates superior quality
  53. 53. Setting the Price - Step 1: Selecting the Pricing Objective 5. PRODUCT-QUALITY LEADERSHIP: aim to be product-quality leader • High quality, taste, status with price that is ‘affordable’ 6. OTHER OBJECTIVES : non-profit & public organizations may have partial or full cost recovery objectives
  54. 54. Setting the Price - Step 2: Determining Demand • Demand is less elastic when: I. Few or no substitutes or competitors II. Buyers do not notice the higher price III. Slow to change their buying habits IV. Buyers think higher prices are justified
  55. 55. Setting the Price - Step 3: Estimating Costs TYPES OF COSTS & LEVELS OF PRODUCTION: 1.Fixed costs: no change with production or sales revenue • Variable costs: vary with production • Total costs = fixed + variable • Average cost = cost per unit production Price to cover total production costs How costs vary with production levels
  56. 56. Setting the Price - Step 5: Selecting a Pricing Method • Figure 14.5 summarizes 3 major considerations in price setting • Companies select a pricing method that includes one or more of these 3 considerations Figure 14.5 The Three Cs Model for Price Setting
  57. 57. Setting the Price - Step 5: Selecting a Pricing Method GOING-RATE PRICING: • Based price on competitors’ prices • WHY popular? • Where costs or competition uncertain, going price reflect industry’s wisdom
  58. 58. Setting the Price - Step 5: Selecting a Pricing Method AUCTION-TYPE PRICING: 3 auction types: I. English auctions (ascending bids) i. One seller & many buyers. Top price II. Dutch auctions (descending bids) i. One seller & many buyers: start high price slowly lowered ii. One buyer & many sellers: lowest price III. Sealed-bid auctions i. one bid & other bids secret
  59. 59. Setting the Price - Step 6: Selecting the Final Price IMPACT OF OTHER MARKETING ACTIVITIES: • Final price to reflect brand’s quality & advertising relative to competition – Average quality, high advertising - premium prices – higher prices for known products than unknown – high quality & advertising- highest price – low quality & advertising- lowest price • Price not as important as quality and other benefits in the market offering
  60. 60. Adapting the Price - Geographical Pricing (Cash Countertrade Barter) • How products are priced to different customers in different locations & countries • Higher prices to cover shipping costs? • How to account for exchange rate? • How to receive payment? • Countertrade: Buyers offer items as payment
  61. 61. Adapting the Price - Geographical Pricing (Cash Countertrade Barter) Forms of Countertrade: • Barter • Compensation deal • Buyback arrangement • Offset • Public-private partnership
  62. 62. Adapting the Price - Price Discounts & Allowances • Companies adjust price & give discounts & allowances for early payment, volume purchases & off-season buying • Higher income earners willing to pay higher prices so discount is a mistake for a strong brand • Discounting useful if firm gets concessions in return
  63. 63. Table 14.3 Price Discounts and Allowances
  64. 64. Adapting the Price - Promotional Pricing • Techniques to stimulate early purchase: 1.Loss-leader pricing 2.Special-event pricing 3.Cash rebates 4.Low-interest financing 5.Longer payment terms 6.Warranties and service contracts 7.Psychological discounting • Promotional-pricing strategy: zero-sum game
  65. 65. Initiating & Responding to Price Changes- Initiating Price Cuts Circumstances that lead firm to cut prices: 1.excess plant capacity 2.drive to dominate the market through lower costs A price-cutting strategy involves possible traps: 1.Low-quality trap 2.Fragile-market-share trap 3.Shallow-pockets trap
  66. 66. Initiating & Responding to Price Changes- Initiating Price Increases • A successful price increase can raise profits considerably; caused by: 1.Cost inflation – anticipatory pricing: anticipation of further inflation or government price controls 2.Overdemand
  67. 67. Initiating & Responding to Price Changes- Initiating Price Increases • Price can be increased in these ways:  Delayed quotation pricing  Escalator clauses  Unbundling  Reduction of discounts
  68. 68. Initiating & Responding to Price Changes- Initiating Price Increases • In initiating price increase: 1.A company needs to decide – Sharp price rise ONCE or – Small price rises, several times 2.Avoid looking like a price gouger 3.Premiums of strong brands are not excessive
  69. 69. Initiating & Responding to Price Changes- Initiating Price Increases Techniques to prevent sticker shock & hostile reaction in customers: Fairness must surround price increase Give advance notice so they can forward buy Sharp price increases explained Making low-visibility price moves
  70. 70. Initiating & Responding to Price Changes- Reactions to Price Changes CUSTOMER REACTIONS: Customers question motivation behind price changes • How a price cutprice cut can be interpreted? 1.Item about to be replaced by new model 2.Item is faulty & is not selling well 3.Firm is in financial trouble 4.Price will come down even further 5.Quality has been reduced
  71. 71. Initiating & Responding to Price Changes- Reactions to Price Changes CUSTOMER REACTIONS: Customers question motivation behind price changes • How price increaseprice increase can be interpreted? 1.Normally deter sales 2.The item is “hot” & represents an unusually good value
  72. 72. Initiating & Responding to Price Changes- Reactions to Price Changes COMPETITOR REACTIONS: • React when firms are few, product is homogeneous & buyers highly informed • How firm anticipate competitor’s reactions? 1.They react in set way to price changes 2.They treat price change as fresh challenge & react according to self- interest at the time
  73. 73. Initiating & Responding to Price Changes- Reactions to Price Changes • Different competitor interpretations on a price cut: 1.Company is trying to steal market, doing poorly & try to boost its sales, or 2.Company wants whole industry to reduce prices to stimulate total demand
  74. 74. Initiating & Responding to Price Changes - Responding to Competitors’ Price Changes • Price cut in homogenous market? 1.Enhance augmented product 2.Reduce price • Price hike in homogenous market? 1.Other firms might not match it unless increase benefits industry as a whole
  75. 75. Initiating & Responding to Price Changes - Responding to Competitors’ Price Changes • Non-homogenous market? 1.Why competitor change price? 2.Planned price change temporary/permanent? 3.What happen to company’s market share & profits if it does not respond? 4.What are competitor’s & other firms’ responses to each possible reaction? • Market leaders frequently face aggressive price cutting by smaller firms trying to build market share
  76. 76. Initiating & Responding to Price Changes - Responding to Competitors’ Price Changes • When faced with lower-priced brands, brand leader can: 1.Maintain price 2.Maintain price and add value 3.Reduce price 4.Increase price and improve quality 5.Launch a low-price fighter line
  77. 77. Figure 14.7 Price-Reaction Program for Meeting a Competitor’s Price Cut

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