pricin stratergy chngd
TRANSCRIPT
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Group 10
Developing pricing stratergy
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Price
y The amount of money charged for a product, or the sum of
the values that consumers exchange for the benefits of
having/using the product or service.
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y For the consumer, it is the total of values he/she gives up inexchange for the benefits ofhaving or using the product.
y Price is theonly element of the marketing mix thatproduces revenue for the seller.
All other elements represent costs.
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Considerations in SettingPrice
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Consumers pricing psychology
y Reference groups
y Price-quality inferences
y Priceques
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Steps in SettingPrice
1. Select the price objective
2. Determinedemand
3. Estimate costs
4. Analyze competitor price mix5. Select pricing method
6. Select final price
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Step 1: Selecting the Pricing Objectivey Survival
y Maximum current profit
y Maximum market share
y
Maximum market skimmingy Product-quality leadership
y Other objectives
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Step 2: Determining Demand
y Price sensitivity
y Estimatedemand curves
y Priceelasticity ofdemand
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Estimating demand curves
y Statistical analysis
y Priceexperiments
y surveys
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Price elasticity of demand
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Factors Leading to Less Price
Sensitivity
y The product is moredistinctive
y Buyers are less aware of substitutes
y Buyers cannot easily compare thequality of substitutes
y Theexpenditure is a smaller part of buyers total incomey Theexpenditure is small compared to the total cost of theend
product
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y Part of the cost is paid by another party
y The product is used with previously purchased assets
y The product is assumed to havehighquality and prestige
y Buyers cannot store the product
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Step 3: EstimatingCosts
y Types of costs
y Accumulated production
y Activity-based cost accounting
y Target costing
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Cost Terms and Production
y Fixed costs
y Variable costs
y Total costs
y Average costy Cost at different levels of production
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Cost Per Unit at Different Levels of
Production
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Cost Per Unit as a Function ofProduction
Experience
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Step 5: Selecting a Pricing Method
y Markup pricing
y Target-return pricing
y Perceived-value pricing
y Value pricingy Going-rate pricing
y Auction-type pricing
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y Markup pricing:
e.g.VC/unit: $10; FC: $300,000; Expected unit sales
50,000,
The unit cost = $10 + ($ 300,000/50,000) = $ 16,
Then markup price = $16/(1-0.2) = $20
yTarget Return pricingy Setting a selling price above the breakeven point, so that a desired
level of profit can be achieved.
y T-R price = UC+(desired return*invested capital)/US
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Breakeven chart
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y Perceived-value pricing: setting premium price for excellentservices, luxurious products etc.
y Value pricing: setting price with everyday low pricing at theretail level .
y Going-Rate pricing: the firm might charge more or less thanthe competitors.
y Auction-Type pricing:
English auctions
Dutch auctions
Sealed-bid auctions
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Step 6: Selecting the Final Price
y Impact of other marketing activities
y Company pricing policies
y Gain-and-risk sharing pricing
y Impact of price on other parties
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Initiating to Price Changes
y Companies face situations where they need to cut or
raise price
y Initiating Price Cuts: as a drive to dominate the market
through lower cost andexcess plant capacity.
y A price-cutting strategy involves possible traps:
a. Low quality trap
b. A low price buys market share but not market loyalty
c. Shallow pocket trap
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y Initiating PriceIncreases:
The major circumstance provoking price increases is cost
inflation.
y A price-increase strategy involves different impact onbuyers:
a. Delayed quotation pricing
b. Unbundlingc. Reduction ofdiscounts
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Responding to price changes
y Customers reaction:
customers often question the motivation behind price
changes.
y
BrandLeader Responses to CompetitivePrice CutsMaintain price
Maintain price and add value
Reduce price
Increase price and improvequality
Launch a low-price fighter line
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Price-Reaction Program for Meeting a Competitors Price
Cut