chapter 10: price and deliver the value offering part 4: price and deliver the value offering...

CHAPTER 10:PRICE AND DELIVER THE VALUE OFFERING

Part 4: Price and Deliver the Value OfferingMcGraw-Hill Education

Copyright © McGraw-Hill Education. All rights reserved. No reproduction or distribution without the prior written consent of McGraw-Hill Education.

LEARNING OBJECTIVES

Understand the integral role of price as a core component of value

Explore different pricing objectives and related strategies

Identify pricing tactics

Describe approaches to setting the exact price

Determine discounts and allowances to offer to channel members

Understand how to execute price changes

Examine legal considerations in pricing

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PRICE IS A CORE COMPONENT OF VALUE Value is a ratio of the bundle of benefits a

customer receives from an offering compared to the costs incurred by the customer in acquiring that bundle of benefits.

Price – or more specifically the customer’s perception of the offering’s pricing – is a key determinant of perceived value.

Developing pricing strategy implies looking at branding and product decisions, service approaches, supply chain, and marketing communication.

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Elements of Managing Pricing DecisionsEXHIBIT

10.1

Establish Pricing Objectives and Related Strategies

Select Pricing Tactics

Set the Exact Price

Determine ChannelDiscounts and Allowances

Execute PriceChanges

Understand Legal Considerations in Pricing

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ESTABLISH PRICING OBJECTIVES AND RELATED STRATEGIES

Pricing objectives are the desired or expected result associated with a pricing strategy.

Pricing objectives must be consistent with other marketing-related objectives as well as with the firm’s overall objectives for doing business.

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Penetration Pricing Used to gain maximum market share Price sensitive customers Firm’s internal efficiencies lead to cost

advantages which allows lower price Sometimes used for new product

introduction Be careful with penetration pricing

Price influences customer perception of quality

Customers prefer lowering price, not raising it

Changing price confuses positioning and brand image

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Price Skimming Initial high price indicates a strong price-

quality relationship Used by firms with first-mover advantage

with high level of panache and exclusivity Electronics Pharmaceuticals

Used effectively in niche markets with few competitors

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Profit Maximization and Target ROI Bottom-line profit is set and then price to meet

the target profit Price Elasticity Of Demand

Will consumers buy at the target ROI price?

Competitor-Based Pricing At the competitor’s price or slightly above or

below Price war occur when one competitor tries to

gain sales and net market share Stability pricing is a neutral set point that

doesn’t irk competitors or endanger the value proposition

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Value Pricing Value pricing overtly attempts to take into

account the role of price as it reflects the bundle of benefits sought by the customer.

Considers the whole deliverable and all sources of differential advantage—image, service, product quality, personnel, innovation—that create customer benefit Toyota and Honda cars cost more initially but

last long, need fewer repairs, are more fuel efficient, and have strong resale value.

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Generic Price-Quality Positioning MapEXHIBIT 10.3

FeasiblePositions

FeasiblePosition

s

FeasiblePosition

s

High Price

Low Price

Low Quality High Quality

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Tactical Pricing ApproachesEXHIBIT 10.4

Auction Pricing

EDLP and

High/Low

Pricing

One-Price and

Variable Pricing

Odd/Even

Pricing

Prestige Pricing

Reference

Pricing

Price Bundlin

g

CaptivePricing

ProductLine

Pricing

Pricing

Tactics

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SELECT PRICING TACTICS

Product Line Pricing

Price points reflect different benefits at different prices

Hotel rooms, autos, appliances or different brands like Ritz-Carlton, Marriott, Fairfield Inn, Courtyard

Captive Pricing

Complementary pricing or “razors and blades” like printers and ink cartridges

In the service sector may be called two-part pricing for firms that charge a monthly fee and then bills for specific services like a gym membership and personal trainer fees

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Price Bundling allows customers to buy a package deal at a lower price than if items bought separately

Cable TV, land line phone service, internet

Reference Pricing gives the buyer a comparative price

Store brands on the shelf next to national brands

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Prestige Pricing

Higher that the competition like luxury goods or ultra-premium products

Odd/Even Pricing

No even numbers. Examples: $1.98 or $1.99

Developed before sales tax and credit cards to bolster cash register security and reduce employee theft

Today is a key element in psychological pricing

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One-Price Strategy and Variable Pricing With one-price, there is no bargaining.

Everyone pays the same for most goods in the U.S.

Variable pricing allows for haggling and is more common around the world

Everyday Low Pricing (EDLP) and High/Low Pricing EDLP reduces investment in promotion High/Low uses heavy promotional pricing

and customers wait for the best price Auction Pricing reflects demand. Ex.

eBay

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SET THE EXACT PRICE

Cost-Plus Pricing/Markup on Cost

Markup on Sales Price

Average-Cost Pricing

Target Return Pricing

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DETERMINE CHANNEL DISCOUNTS AND ALLOWANCES

Discounts are direct, immediate reductions in price provided to purchasers.

Allowances remit monies to purchasers after the fact.

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Cash Discounts

Trade Discounts

Quantity Discounts

Seasonal Discounts

Promotional Allowances

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Geographic Aspects of Pricing

FOB Pricing

Uniform Delivered Pricing

Zone Pricing

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EXECUTE PRICE CHANGES

A change in an offering’s price – either up or down – can dramatically impact the effectiveness of the overall marketing mix variables in reflecting your offering’s positioning in the eyes of customers.

Just Noticeable Difference (JND) The amount of price increase that can be

taken without affecting customer demand

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UNDERSTAND LEGAL CONSIDERATIONS IN PRICING

Price Fixing

Price Discriminati

on

Deceptive Pricing

Predatory Pricing

Fair Trade and Minimum Markup Laws

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chapter 10: price and deliver the value offering part 4: price and deliver the value offering...

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