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Chap011
This document discusses pricing strategy and management. It covers analyzing pricing situations, selecting pricing strategies, and determining specific prices and policies. Key aspects include analyzing customer price sensitivity, competitors, and costs. Pricing strategies include skimming, penetration, and being at, above, or below competition. Determining specific prices considers costs, demand, and pricing in action. Policies manage pricing structure and discounts. Special situations involve pricing across segments, channels, and a product's life cycle.
Chap011
- 1. 11-1 Chapter Eleven Pricing Strategy and Management McGraw-Hill/Irwin© 2006 The McGraw-Hill Companies, Inc., All Rights Reserved.
- 2. 11-2 Strategic Roleof Price Analyzing the Pricing Situation Selecting the Pricing Strategy Determining Specific Prices and Policies PRICING STRATEGY AND MANAGEMENT
- 3. 11-3 Pricing Decisions are CreatingMajor 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 thereason 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 weput 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 Fitsinto the Positioning Strategy Positioning Strategy Product strategy Target market and objectives Value-Chain strategy Pricing strategy Promotion strategy
- 7. 11-7 Pricing Situations Newproduct pricing Life cycle pricing Positioning strategy change Countering competitive threats
- 8. 11-8 Role of Pricein Positioning Strategy Signal to the Buyer Instrument of Competition Improving Financial Performance Marketing Program Consideration s
- 9. 11-9 Pricing Strategy for Newand 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
- 11. 11-11 Customer Price Sensitivity Legal and Ethical Constraints Competitors’ Likely Responses Analyzingthe Pricing Situation Product Costs ANALYZING THE PRICING SITUATION
- 12. 11-12 Customer Price Sensitivity 1. Howlarge 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 ofValue 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 Determinecost 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 Whichfirms 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 inthe 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.
- 17. 11-17 Legal and Ethical Considerations Whatare the legal and ethical factors that may affect the choice of a price strategy?
- 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?
- 19. 11-19 Determinants of Pricing Flexibility Demand Costs Demand-Cost Gap Competition Legaland Ethical Influences
- 20. 11-20 Price too high; littleor 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?
- 21. 11-21 Above Competition Below Competition Skim strategy Neutral strategy (sameas competition) Penetration strategy Price Positioning
- 22. 11-22 Diplomacy rather than force Select competitive confrontations Signaling Competitive Pricing Issues Target segments insteadof volume Source: Thomas T. Nagle, “Price Competition,” Marketing Management, Vol. 2, No. 1, 38-45.
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- 24. 11-24 DETERMINING SPECIFIC PRICES AND POLICIES Determining Specific Prices Policies to Manage Pricing Strategy Special Pricing Issues
- 25. 11-25 Basis of Determining SpecificPrices Cost Competition Demand Pricing in Action
- 26. 11-26 Establishing Pricing Policy andStructure 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
- 27. 11-27 Special Pricing Situations Price Segmentation ValueChain (Distribution) Channel Pricing Price Flexibility Product Life Cycle Pricing Counterfeit Products