chapter 8 pricing strategy - sherman 3 5 competitor-oriented pricing 1. where firms follow the...
TRANSCRIPT
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Chapter 8
Pricing Strategy
2
Pricing Methods
Cost
Competition Marketing
Pricing
methods
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Cost-based Pricing
Direct Costs (per unit) =£2
Fixed Costs = £200,000
Expected Sales = £100,000
Costs per Unit
Direct Costs = £2
Fixed Costs (200K/100K) = £2
Full Costs = £4
Mark-up (10%) = £0.40
Price (costs + mark-up) = £4.40
Expected Sales = £50,000
Cost per unit
Direct costs = £2
Fixed costs (200,000/50,000) = £4
Full cost = £6
Mark-up (10%) £0.60
Price (cost plus mark-up) = £6.60
Year 1 Year 2
4
Losses
Break even point
Fixed costs
Total revenue
Total variable costs
Total cost
Profits
Units of Production
Mo
ne
y (
£)
Determining the Break-Even Point
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Competitor-Oriented Pricing
1. Where firms follow the prices charged by leading competitors
2. Where producers take the going-rate price
3. Where contracts are awarded through a competitive bidding process
This type of pricing may take one of 3 forms:
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Market-led Pricing
A key marketing consideration when pricing is estimating value to the customer. 3 useful techniques for determining customers' perception of value are:
1. Trade-off analysis
2. Experimentation
3. Economic value to the customer analysis
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Key Factors Influencing Price-setting Decisions:
Positioning strategy
New product launch strategy
Product-line strategy
Channel management strategy
Competitive marketing strategy
International marketing strategy
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Positioning Strategy Marketing management must decide upon the target market and the creation of a differential advantage.
Price perceptions are so important to customers, many companies engage in what is called psychological pricing – that is, the careful manipulation of the reference prices that consumers carry in their heads.
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New Product Launch Strategy
Rapid
skimming High
Slow
skimming
Rapid
penetration
Slow
penetration
Price
Low
Promotion
High Low
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Initiating Price Changes
Circumstances
Tactics
Estimating
competitor
reaction
Increases Cuts
Value greater than price
Rising costs
Excess demand
Harvest objective
Value less than price
Excess supply
Build objective
Price war unlikely
Pre-empt competitive price
entry
Price jump
Staged price increases
Escalator clauses
Price unbundling
Lower discounts
Price fall
Staged price reductions
Fighter brands
Price bundling
Higher discounts
Strategic objectives
Self-interest
Competitive situation
Past experience
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The Largest Grocery Retailer
in the U.S.
Headquarters in Bentonville,
Arkansas, United States
Slogan:
Save Money. Live Better.
Background
Founded: July 2, 1962
Founder: Sam Walton
By the end of 2015
Number of locations: 11,620
Revenue: US$485.651 billion
Operating income: US$27.147 billion
Net income: US$16.363 billion
Total assets US$203.490 billion
Total equity US$81.394 billion
Owner: Walton family (52%)
Number of employees:
2.2 million in the World,
1.4 million in U.S.
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Founder of Walmart and
Sam's Club
Walmart is a family-owned
business, controlled by
the Walton family.
Sam Walton's heirs own
over 50 percent of Walmart
through their holding
company, Walton
Enterprises, and through
their individual holdings.
Walmart’s Vision Statement:
“To be the best retailer in the hearts and minds of
consumers and employees.”
Walmart’s Mission Statement:
“Saving people money so they can live better.”
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Walmart:
Marketing Mix
Product
Retail Service: Convenience and Effectiveness
Convenience: Walmart’s offers a wide array of goods in its
stores
Effectiveness: Walmart’s sales personnel are trained to
effectively assist shoppers in finding the goods they need,
which directly influence how customers feel when they enter
the stores.
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Pricing - main contributor to Walmart’s competitiveness
Everyday Low Price (EDLP) pricing strategy
The objective of this pricing strategy is to attract large
populations of customers.
The company has low costs and low prices. However, the
large sales volume enables Walmart to generate profits.
Promotion - improve the company’s ability to attract
customers to its stores and helps build brand recall
Advertisements - newspapers, websites, outdoor
Sales promotions - special deals and discounts
Personal selling - sales personnel persuade customers to
try new products or package deals at Walmart stores
Public relations - uses press releases to inform customers
and investors about policies, programs and strategies, also
occasionally sponsors charity programs.
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Place
Have 11,620 locations by the end of 2015, which is
spread across 28 countries.
Sells both by traditional stores and e-commerce
formats.
• Walmart discount stores
• Walmart super centers
• Walmart neighborhood markets
• Walmart express stores
Place - helps attract customers by making shopping
convenient in terms of location
Intensive distribution strategy
Offer the same variety of goods, while the same employee
roles and responsibilities apply to each store.
Continues to open new stores to reach more customers.
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Chapter Summary There are 3 bases for setting prices: cost, competition and market-value.
Pricing levels may be influenced by many marketing strategy variables: positioning, new product launch, product-line, competitive marketing, channel management and international marketing strategies.
Prices are dynamic and marketers should be ready to respond to price changes by competitors.
There are key issues surrounding the ethics of price
setting, some of which illegal and others unethical.