initiating and responding to price changes

1. INITIATING AND
RESPONDING TO PRICE
CHANGESDr. Maimoon sulthan

2. INITIATING AND RESPONDING TO
PRICE CHANGES
Initiating
price cuts
Initiating
price
increases
Anticipating
competitive
responses
Responding
to
competitors
price
changes

3. INITIATING PRICE CUTS
 Excess plant
capacity
Drive to dominate the
market through lower
costs.
Starts lower than its
competitors or
initiates price cuts to
gain market share
Encourages
customers to
demand price
concessions

4. TRAPS Low quality trap
Consumers assume quality is low
 Fragile-market-share trap
No market loyalty. Customers shift
to any other low-priced firm
 Shallow-pockets trap
Higher priced competitors have
longer staying powers because
of deep cash reserves
 Price-war trap
Competitors respond by lowering
prices even more- price war

5. INITIATING PRICE INCREASE
 A successful price increase
can raise profits considerably.
 Cost inflation
provokes price increase
 Anticipatory pricing
Companies often raise the
prices more than the cost
increase ,in anticipation of
further inflation or government
controls
 over demand
when a company cannot supply
all its customers

6. WAYS OF INCREASING PRICE
• Final price not set until production finished
• Long production lead times like industrial
construction and heavy equipments
Delayed
quotation pricing
• Today’s price plus all or part of any
inflation before delivery
• Contracts, aircrafts, bridge
Escalator
clauses
• Maintains price but removes or prices
separately previous offers
• Delivery, installations, GPS
Unbundling
• Not offering its normal cash and quantity
discountsReduction of
discounts

7. Product customization and differentiation

8. To avoid sticker shock
 Giving advance notice
 Making low-visibility price moves
 Eliminating discounts
 Increasing minimum order sizes
 Contracts- escalator clauses

9. Anticipating competitive responses
 Price changes provokes competitors response
 when the number of firms is few
 Homogenous products
 Buyers highly informed
Competitor responses
 market share objective- match price differences
 Profit-maximization objective- advertising,
product quality

11. Responding to competitors’ price changes
 Product’s stage in the life cycle
 Importance in the company’s portfolio
 Competitors intention and resources
 Market’s price
 Quality sensitivity
 Cost
 Company’s alternative opportunities

12. Homogeneous Non-homogenous
 Enhance
product/reduce
price
 If Price increase
will not benefit
industry, others
may not increase
price
 Price leader has to
roll back the
increase
 Why the price
change
 Temporary or
permanent
 Market share and
profit in case of non
response
 Competitors and
other firms reaction

13. LOW-COST COMPETITORS

14. Responses to low-cost competitors
 Further differentiation of product or service
 Introducing a low-cost venture
 Reinvent as a low-cost player
Extended analysis is not always possible so
anticipate possible price changes an
prepare contingent response