Session 24 MG 220 BBA - 8 Nov 10

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Session 24
MG 220 Marketing Management
BBA 09 Sec C

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Session 24 MG 220 BBA - 8 Nov 10

  1. 1. MG 220 Marketing Management BBA 09 – Sec C Fall 2010 Muhammad Talha Salam, Asst. Professor talha.salam@nu.edu.pk Access it online: www.slideshare.net/talhasalam Part 5: Shaping the Marketing Offerings > Setting the Price > Adapting the Price > Initiating and Responding to Price Changes Class Presentation | Session 24 | 8 Nov 2010
  2. 2. Access it online: www.slideshare.net/talhasalam Setting the Price Process Review Concept of Price-Tiers • In some markets, as many as eight price points or price-tiers can be found: – Ultimate – Gold Standard – Luxury – Special Needs – Middle – Ease/Convenience – Me too, but cheaper – Price Alone • Some or all of these price points may exist in a certain market MG 220 Marketing Management 2
  3. 3. Access it online: www.slideshare.net/talhasalam Setting the Price Process Review Concept of Price-Tiers • Consumers often rank products based on price tiers for a certain category • Within any tier, there are price bands • Example of Ice-cream brands: Steps in Setting the Price • Step 1: Setting the Price Objective • Step 2: Determining Demand • Step 3: Estimating Objectives • Step 4: Analyzing Competitors’ costs, prices & offer • Step 5: Selecting the price method • Step 6: Selecting the final price MG 220 Marketing Management 3
  4. 4. Access it online: www.slideshare.net/talhasalam Setting the Price Step 1: Selecting the Pricing Objective Key Price Objectives • Survival – Short-term • Maximum Current Profit • Maximum Market Share – Setting lowest price to stimulate demand – Conditions: Highly price sensitive market | production & distribution costs fall with accum. Prod. | low price discourages competition • Maximum Market Skimming – Price start high and are reduced gradually – Conditions: Sufficient no. of buyers have high demand | unit cost of producing small vol are not high | high initial cost doesn’t attract more competition | high price: superior prod image • Product-Quality Leadership – “Affordable luxuries” – Being premium, quality product yet just within reach of consumers MG 220 Marketing Management 4
  5. 5. Access it online: www.slideshare.net/talhasalam Setting the Price Step 2: Determining Demand Key considerations in determining demand • Price Sensitivity – Companies need to understand price sensitivity of their consumers – Also trade-offs people are willing to make between price and product characteristics • Estimating Demand Curves – Statistical analysis – Price experiments – Surveys • Price Elasticity of Demand – Responsiveness of consumers to price – Based on elasticity, it can be determined how much effect will be on total revenue – E.g. More elastic means, lower price will produce more total revenue – Price elasticity depends on magnitude and direction of price change – Long-run price elasticity is different from short-run price elasticity MG 220 Marketing Management 5
  6. 6. Access it online: www.slideshare.net/talhasalam Setting the Price Step 3: Estimating Costs Types of Costs • Fixed Costs – costs that do not vary with level of production • Variable Costs – costs that vary with level of production • Total Costs – sum of fixed and variable costs at any level of production • Average Costs – cost per unit at that level of production Accumulated Production • Concept of Learning/Experience curve • With more experience, costs come down • Its not only for manufacturing costs but also for others like marketing costs etc • Needs to be used carefully particularly vis-à-vis competitors ABC Cost Accounting • Every activity is accounted for • Costs are analyzed for different consumers, retailers and assigned to them Target Costing • Establishing product functions and price at which it will sell using market research • Then, target costing with production team(s) to achieve that level MG 220 Marketing Management 6
  7. 7. Access it online: www.slideshare.net/talhasalam Setting the Price Step 4: Analyzing Competitors’ costs, prices & offers Review & Analyze Competitors’ costs Competitors’ Prices & Offers MG 220 Marketing Management 7
  8. 8. Access it online: www.slideshare.net/talhasalam Setting the Price Step 5: Selecting a Pricing Method Three Cs • Customers’ Demand schedule • Cost Function • Competitors’ prices • FLOOR Costs • CEILING Customers’ assessment • STARTING POINT Competitors’ prices (& prices of substitutes) • Six different methods used – Markup pricing – Target-Return Pricing – Perceived Value Pricing – Value Pricing – Going-Rate Price – Auction-type Pricing MG 220 Marketing Management 8
  9. 9. Access it online: www.slideshare.net/talhasalam Setting the Price Step 5: Selecting a Pricing Method (…contd.) Six different methods used • Markup pricing – Add markup to costs | Most simple | Ignores several key factors like competitors, perceived image • Target-Return Pricing – ROI target is established and is used to achieve at a price – Break-even level has to be established – Book’s example • Perceived Value Pricing – Companies base their price on customer’s perceived value – Key is to deliver more value than competitors and demonstrate it • Value Pricing – Lowering pricing on high-quality offerings – Requies re-engineering to become a low-cost producer • Going-Rate Price – Prices are based largely on competitors prices • Auction-type Pricing – Types: English (Ascending) | Dutch (Descending) | Sealed bid MG 220 Marketing Management 9
  10. 10. Access it online: www.slideshare.net/talhasalam Setting the Price Step 6: Selecting the Final Price Impact of other Marketing Activities • Studies showed that brands with higher advertising budgets were able to charge premium • Consumers paid more for ‘known’ brands than ‘unknown’ ones Impact of Price on other parties • Reaction of other stakeholders • Particularly distributors, dealers as their profits (earnings) are dependent on company’s pricing • How will competitors’ react? MG 220 Marketing Management 10
  11. 11. Access it online: www.slideshare.net/talhasalam Adapting the Price Geographical Pricing • Several considerations • Should there be different prices to ‘distant’ customers to cover extra logistics’ costs • How to accept payments • Countertrade – Offering payment in other items than cash • Different forms: – Barter – Compensation Deal – Buyback arrangement – Offset Price Discounts & Allowances • Cash Discount • Quantity Discount • Functional Discount • Seasonal Discount • Allowance MG 220 Marketing Management 11
  12. 12. Access it online: www.slideshare.net/talhasalam Adapting the Price Promotional Pricing • Loss-leader pricing • Special-even pricing • Cash rebates • Low-interest financing • Longer payment terms • Warranties and service contracts • Psychological discounting Differentiated Pricing MG 220 Marketing Management 12
  13. 13. Access it online: www.slideshare.net/talhasalam Initiating & Responding to Price Changes NOT INCLUDED IN COURSE MG 220 Marketing Management 13
  14. 14. MG 220 Marketing Management BBA 09 – Sec C Fall 2010 Muhammad Talha Salam, Asst. Professor talha.salam@nu.edu.pk Access it online: www.slideshare.net/talhasalam Part 6: Delivering Value > Marketing Channels and Value Networks > The Role of Marketing Channels: SKIM > Channel-Design decisions > Channel-Management decisions: SKIM > Channel integration and systems: SKIM > E-Commerce Marketing Practices: SKIM Class Presentation | Session 25 | 10 Nov 2010

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