The document discusses the complexity of pricing decisions and strategies. It begins by stating that price is an expression of value rather than just costs and margins. It then lists many factors that influence pricing, such as costs, product attributes, image, availability, service, and customer value. Different pricing approaches are outlined, including cost-based, competition-based, and buyer-based pricing. A variety of pricing strategies are also described, such as product-line pricing, promotional pricing, and price adjustments like discounts, discriminatory pricing, and promotional pricing. The document emphasizes that effective differentiation and understanding consumer psychology are important considerations for optimal pricing.

1. Pricing
The Puzzle of the Next Century

2. Costs + Margins = PRICE
Pricing Puzzle
“ A price is not merely a function of costs
and margins… ”

3. Costs + Margins = PRICE
Pricing Puzzle
“ A price is not merely a function of costs
and margins… ”
“…it is an expression of VALUE ”

4. Pricing Puzzle
 Production costs
 Indirect costs
 Advertising costs
 Distribution costs
 Manufacturer’s margin
 Distributor’s margin
 Seller’s margin
 Product performance
• Usefulness & Quality
 Image / Aspirations
• Brand Equity
 Availability
• Distribution Strategy
 Service
• Before/During & After sales
Minimize Optimize Maximize
Costs + Margins = PRICE
VALUE

5. Pricing Puzzle
4 P’s
 PRODUCT
 PRICE
 PLACE
 PROMOTION
4 C’s
 CUSTOMER VALUE
 COST
 CONVENIENCE
 COMMUNICATION

6. Pricing Puzzle
4 P’s
 PRODUCT
 PRICE
 PLACE
 PROMOTION
4 C’s
 CUSTOMER VALUE
 COST
 CONVENIENCE
 COMMUNICATION

7. A Secret Pie
 Impact of a 1 % price increase on profits
– Coca-Cola 6,4 %
– Nestlé 17,5 %
– Ford 26,0 %
– Philips 28,7 %

8. Pricing Puzzle
4 P’s
 PRODUCT
 PRICE
 PLACE
 PROMOTION
4 C’s
 CUSTOMER VALUE
 COST
 CONVENIENCE
 COMMUNICATION
Seller’s Dilemma

9. Pricing Puzzle
4 P’s
 PRODUCT
 PRICE
 PLACE
 PROMOTION
4 C’s
 CUSTOMER VALUE
 COST
 CONVENIENCE
 COMMUNICATION
“ Tomorrow’s winner companies will
be those who offer distinct products at
comparatively low market prices ”

10.  Physical Differences
– Features, performance, durability, conformance, design, etc…
 Availability Differences
– Distribution channels ; Stores, mail-order, internet, etc…
 Service Differences
– Delivery, installation, training, consulting, maintenance, etc…
 Price Differences
– Price positioning (Very high / High / Medium / Low / Very Low)
 Image Differences
– Symbols, atmosphere, events, media, etc…
Key = Differentiation
The key to drive value is to offer relevant and
distinctive product differentiation

11.  Physical Differences
– Levi’s Engineered Jeans (Ergonomic construction, durability, style)
 Availability Differences
– Dell Computer’s customized production, Volkswagen “e.lupo”
 Service Differences
– Acıbadem Hospital – Mother Care Division, Nissan “5-year Warranty”
 Image Differences
– Audi vs Mercedes, DuPont (Innovation Leader)
Differentiation : Examples
Key = Differentiation

12.  Perdue Chicken (USA)
– Guaranteed tenderness (30 % market-share, 10 % premium pricing)
 Flora Drinking Water (Turkey – Sabancı Holding)
– Service, packaging, attributes, operation
 Starbuck’s Coffee (USA)
– Atmosphere, standard service
Differentiating commodities…
Key = Differentiation
Everything can be differentiated !...

13. Pricing Decisions
 INTERNAL FACTORS
– Marketing Objectives
» Positioning
» Target Group
– Marketing Mix Strategy
» 4 P’s
– Costs
» Fixed & Variable
– Management Approach
» Responsibility
» Perspective
 EXTERNAL FACTORS
– Market
» Pure Competition
» Monopolistic Competition
» Oligopolistic Competition
» Pure Monopoly
– Demand
» Elastic / Inelastic
– Competition
» Competitors’ offers
» Competitiors’ reactions
– Economy
» Buying power
– Government Influence
» Laws & Regulations

14. Pricing Approaches
 Cost-Based Pricing
– Cost-Plus Pricing
» Product Cost + Standard Mark-Up = Price
– BE Analysis & Target Profit Pricing
» A necessary survival tool
 Buyer-Based Pricing
– Perceived Value
» Consider buyers’ perceptions of value NOT the cost
 Competition-Based Pricing
– Basing prices on competitors’ prices
» Premium Pricing
» Going-Rate Pricing
» Discount Pricing

15. Pricing Strategies
 PRICING a SINGLE NEW PRODUCT
– Market-Skimming
» Highest possible price to skim small but profitable segments
– Penetration Pricing
» Lowest possible price to penetrate the market quickly

16. Pricing Strategies
 PRODUCT-MIX PRICING
– Product-Line Pricing
» Establishing product lines at different price points
 Volkswagen (Polo, Bora, Golf, Passat)
– Optional-Product Pricing
» Offering to sell optional/accessory products along with the main product
 BMW & Mercedes
– Captive-Product Pricing
» Offering products, which must be used with the main product
 Gillette razor blades
– By-Product Pricing
» Valued by-products positively affect pricing
 Petroleum by-products
– Product-Bundle Pricing
» Several products combined and offered at a reduced price
 Season tickets, New-year packages of hotels

17.  Adjust basic prices to account for various customer
differences and changing situations
– Discounts & Allowances
» To attract/reward certain customer respones
– Discriminatory Pricing
» To allow for differences in customers, products & locations
– Promotional Pricing
» Varying price reductions offered depending on shopping
period, item purchased, etc...
Price Adjustments

18. Price Adjustment Strategies
 DISCOUNTS & ALLOWANCES
– Cash Discounts
» Attract early payments
 A 15% reduction applied to those customers who buy on cash
– Quantity Discounts
» Price reduction to buyers who buy large quantities
– Functional Discounts
» Differentiating prices among trade channel members
 Different mark-ups for OLSs and corners
– Seasonal Discounts
» Price reduction to buyers who buy out-of-season
– Allowances
» Trade-in Allowances
 Bring the old, take away the new...
» Promotional Allowances
 Discounts provided in return for participating in special programs

19. Price Adjustment Strategies
 DISCRIMINATORY PRICING
– Customer-segment Pricing
» Different customers pay different prices
 Disneyland Adult vs Child pricing
– Product-form Pricing
» Different versions of the product are priced differently, regardless of the
cost
 An additional feature with a slight cost might justify a fat price premium
– Location Pricing
» Different locations are priced differently, regardless of the cost
 Business Class seats
– Time Pricing
» Prices differ from month to month, day to day, even hour to hour
 Prime-time/Off-prime-time pricing of advertising time

20. Price Adjustment Strategies
 PROMOTIONAL PRICING
– Loss Leaders
» Attract consumers in store, sell other items as well
 Hyper-Markets (Carrefour, Gima, Praktiker, Migros, etc...)
– Special-event Pricing
» Offering discounts at times of special events
 Valentine’s Day, New year, Şişli Municipality’s discount campaign
– Cash Rebates
» Discounts offered to consumers for purchases made in a limited period
of time
 Dockers campaign (20 % off)
– Simple Cash Discounts
» Over-the-counter to support revenues OR to defend against competition

21.  Consumer’s Mind-set (Black-Box)
– BE CAREFUL !!!
» Price vs Quality Image
 CK perfume
 Rolex watch
 Pharmaceutical items
» Perceptions
 30.000.000 TL vs 29.950.000 TL
Psychology of Price

22. One Final Word
“ A product is not a product unless it sells.
Otherwise, it’s just a museum piece…”
Ted Levitt