lt9 -pricing stragsforaspac
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Pricing Strategies for Pricing Strategies for the Asia Pacificthe Asia PacificAsia-Pacific Marketing Asia-Pacific Marketing
FederationFederationCertified Professional Certified Professional
MarketerMarketerCopyrightCopyright
Marketing Institute of SingaporeMarketing Institute of Singapore
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OutlineOutline IntroductionIntroduction Pricing strategies and processPricing strategies and processReactions to price changesReactions to price changes Impact on discountingImpact on discounting Price warsPrice wars Yield managementYield management
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IntroductionIntroduction
We need to set price when we We need to set price when we have a new product, or when we have a new product, or when we enter a new market with an enter a new market with an existing productexisting product
How? How? Need to decide what position you Need to decide what position you
want your product to be in (see want your product to be in (see quality-price relationship—next slide)quality-price relationship—next slide)
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Price-Quality StrategiesPrice-Quality Strategies Philip Kotler identified 9 price-Philip Kotler identified 9 price-
quality strategiesquality strategies
Premium HighValue
SuperValue
OverCharging
MidValue
GoodValue
Rip-off FalseEconomy Economy
High QualityHigh Quality
Low QualityLow Quality
High PriceHigh Price Low PriceLow Price
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Pricing ProcessPricing Process1.1. Set Pricing Objectives (see next slide)Set Pricing Objectives (see next slide)2.2. Analyze demandAnalyze demand3.3. Draw conclusions from competitive Draw conclusions from competitive
intelligenceintelligence4.4. Select pricing strategy appropriate to Select pricing strategy appropriate to
the political, social, legal and the political, social, legal and economical environmenteconomical environment
5.5. Determine specific pricesDetermine specific prices
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Possible Pricing ObjectivesPossible Pricing Objectives Profit objectives e.g.Profit objectives e.g.
Targeted profit returnTargeted profit returnVolume objectives e.g.Volume objectives e.g.
Dollar or unit sales growthDollar or unit sales growthMarket share growthMarket share growth
Other objectives e.g.Other objectives e.g.Match competitors’ priceMatch competitors’ priceNon-price competitionNon-price competition
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Demand AnalysisDemand Analysis
Measure the impact of price Measure the impact of price change on total revenuechange on total revenue
Predicts unit sales volume and Predicts unit sales volume and total revenue for various price total revenue for various price levelslevels
Different customers have different Different customers have different price sensitivities and needsprice sensitivities and needs
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Impact of Cost on Pricing Impact of Cost on Pricing StrategyStrategy
Fixed and variable costs Fixed and variable costs Full-Cost PricingFull-Cost Pricing
Markup pricing, break-even pricing Markup pricing, break-even pricing and rate-of-return pricingand rate-of-return pricing
Variable-cost pricingVariable-cost pricing 3 types of relationships3 types of relationships
Ratio of fixed costs to variable costsRatio of fixed costs to variable costsEconomies of scalesEconomies of scalesCost structureCost structure
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Discussion: Impact of Ethics on Discussion: Impact of Ethics on PricingPricing
How should you price if your How should you price if your product is a life-saving drug?product is a life-saving drug?
What are the ethical considerations?What are the ethical considerations?Customers have no choiceCustomers have no choiceNeed to pay for the researchNeed to pay for the researchWhen cheaper options doesn’t workWhen cheaper options doesn’t workCompetition decidesCompetition decides
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Information Needed for Information Needed for Price ChangePrice Change
Customers’ ability & willingness to buy; Customers’ ability & willingness to buy; customer lifestyle; benefits sought; customer lifestyle; benefits sought; characteristics of the product e.g.characteristics of the product e.g.When the When the kopi tiamskopi tiams, local coffee shops in , local coffee shops in
Singapore tried to raise the price of a cup of Singapore tried to raise the price of a cup of coffee by 10 cents in March 1994, the coffee by 10 cents in March 1994, the grass-root reaction was stormygrass-root reaction was stormy
When When StarbucksStarbucks Coffee and Coffee and Spinelli’sSpinelli’s raised raised their prices in the beginning of 1998 by a their prices in the beginning of 1998 by a hefty 20%, nobody raised an eyelithefty 20%, nobody raised an eyelit
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Information Needed for Information Needed for Price Change (cont’d)Price Change (cont’d)
Need to know everything about the Need to know everything about the competitors competitors How would competitors react to our How would competitors react to our
price change? (see following slide)price change? (see following slide) In obtaining competitors’ information, In obtaining competitors’ information,
remember the value of the remember the value of the informationinformation
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New-Product Pricing New-Product Pricing StrategiesStrategies
1.1.Skimming pricingSkimming pricing Charging a high price initially and Charging a high price initially and
reducing the price over timereducing the price over time Commonly used when introducing Commonly used when introducing
new & innovative products in the new & innovative products in the ASPAC regionASPAC region
2.2.Penetration pricingPenetration pricing Charging a low price when entering Charging a low price when entering
the market to capture market sharethe market to capture market share Used when competitors are closing in Used when competitors are closing in
with similar or better productswith similar or better products
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New-Product Pricing New-Product Pricing Strategies (cont’d)Strategies (cont’d)
3.3. Intermediate pricingIntermediate pricing Pricing somewhere in between the Pricing somewhere in between the
skimming strategy and the skimming strategy and the penetration strategypenetration strategy
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Pricing Strategies for Established Pricing Strategies for Established ProductsProducts
Three strategic alternatives:Three strategic alternatives: Maintain the price if you are the leader e.g.Maintain the price if you are the leader e.g.
In 1999, Shell in Singapore maintained its price In 1999, Shell in Singapore maintained its price when other petrol companies engaged in a price when other petrol companies engaged in a price war until towards the end of the engagementwar until towards the end of the engagement
Reduce the price e.g.Reduce the price e.g. SIA regularly reduce its airfare in anticipation of SIA regularly reduce its airfare in anticipation of
the developing market situationsthe developing market situations Increase the price Increase the price
during inflation, or if demand is expected to during inflation, or if demand is expected to increase or if you wish to harvest e.g. in Indonesiaincrease or if you wish to harvest e.g. in Indonesia
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Price-Flexibility StrategyPrice-Flexibility StrategyOne-price policy—setting one One-price policy—setting one
fixed price for all marketsfixed price for all markets Flexible-price policy—setting Flexible-price policy—setting
different prices in different different prices in different markets based on:markets based on:Geographic Location,Geographic Location,Time of delivery, or Time of delivery, or The complexity of the productThe complexity of the product
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How much flexibility in price?How much flexibility in price?
Depends on the Demand-Cost Depends on the Demand-Cost gap and the influence of gap and the influence of competition, social, legal and competition, social, legal and ethical considerationsethical considerations
Example:Example: Life-saving drugs Life-saving drugs
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Product-Line PricingProduct-Line Pricing
When pricing products in When pricing products in different lines, must take different lines, must take cross-cross-elasticitieselasticities of demand across the of demand across the set of products into considerationset of products into consideration
The idea is to maximize the The idea is to maximize the profits of the entire organization profits of the entire organization rather than that of a single rather than that of a single product or a single lineproduct or a single line
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Leasing StrategyLeasing StrategyLeasing is more common for Leasing is more common for
industrial goods e.g.industrial goods e.g.Singapore Airlines sold many of Singapore Airlines sold many of
their aircraft and lease them back their aircraft and lease them back for their operationsfor their operations
There is a There is a growing trendgrowing trend toward toward leasing consumer goods as wellleasing consumer goods as welle.g. Leasing of office equipmente.g. Leasing of office equipment
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Reactions to Price ChangeReactions to Price ChangeCustomers are more sensitive to Customers are more sensitive to
price changes if the products cost price changes if the products cost a lot and/or are bought frequentlya lot and/or are bought frequently
Competitors may see each of Competitors may see each of your price change as a fresh your price change as a fresh challenge and react according to challenge and react according to its self-interest at the time. Need its self-interest at the time. Need to estimate each close to estimate each close competitor’s likely reactioncompetitor’s likely reaction
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Responding to Competitors’ Responding to Competitors’ Price ChangePrice Change
If competitors lower price for If competitors lower price for homogenous productshomogenous productsTry augmenting the productTry augmenting the product If it doesnIf it doesn’’t work or if it is not likely to t work or if it is not likely to
work, then meet the price cut head-onwork, then meet the price cut head-on
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Responding to Competitors’ Responding to Competitors’ Price Change (cont’d)Price Change (cont’d)
If competitors raise priceIf competitors raise price In a homogeneous market, follow if you In a homogeneous market, follow if you
think the whole market is likely to followthink the whole market is likely to follow In a non-homogeneous market, evaluateIn a non-homogeneous market, evaluate
The reason for the competitor price The reason for the competitor price changechange
If the price increase is temporaryIf the price increase is temporaryThe effect on your market share & profitThe effect on your market share & profitThe likely response(s) from the other The likely response(s) from the other
competitorscompetitors
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When a Market Leader is When a Market Leader is Being Attacked on PriceBeing Attacked on Price
Options available:Options available:Maintain priceMaintain priceRaise perceived qualityRaise perceived qualityMatch competitors’ priceMatch competitors’ price Increase price and improve Increase price and improve
qualityquality
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Impact of Discounting on Impact of Discounting on Brand EquityBrand Equity
Why discount?Why discount? Problems emerging with Problems emerging with
discountsdiscounts The value equation (V=Q/P)The value equation (V=Q/P)
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Price WarPrice WarPrice wars are frequent in industries Price wars are frequent in industries
wherewhereCost differentiation opportunities existsCost differentiation opportunities existsCapital is intensive and products are Capital is intensive and products are
homogeneoushomogeneousExamplesExamples: Airfares, ISP, Petrol, & Loans : Airfares, ISP, Petrol, & Loans
e.g. e.g. The Home Loan price war in Singapore in The Home Loan price war in Singapore in
Sept 2000 involving OUB, UOB, DBS among Sept 2000 involving OUB, UOB, DBS among othersothers
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Yield ManagementYield Management
What is it?What is it? Yield management goalsYield management goals Industries that benefited from Industries that benefited from
yield managementyield managementCommon variablesCommon variables
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