Price marketing course

Objectives
Compare the alternative pricing strategies and explain when each strategy is most appropriate.
Describe how prices are quoted.
Identify the various pricing policy decisions that marketers must make.
Relate price to consumer perceptions of quality.
Contrast competitive bidding and negotiated prices.
Explain the importance of transfer pricing.
Compare the three alternative global pricing strategies.
Relate the concepts of cannibalization, bundle pricing, and bots to online pricing strategies.

The scope of Price
Price is money equivalent of
Cost + profit
Customer satisfaction
value

The Economist’s View
20
10
100
200
120
Price
Quantity demanded

Pricing methods
Jobber, 2003

Cost-oriented 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%) £0.4
Price (costs + mark-up) £4.4
Costs are taken into account only when they are directly attributable to the production of a particular product. Fixed costs or overheads are not included in the marginal cost.
Marginal cost for the example given:
Fixed Costs £200,000
Expected Sales £100,000
Marginal Cost £2
Mark-up (10%) £0.2
Marginal Price £2.2
Full Cost Pricing
Direct (Marginal) Cost Pricing

Competition

Alternative Pricing Strategies
Skimming Pricing Strategies—known as market-plus pricing.
Intentional setting of a relatively high price.
More commonly used as a market entry price for distinctive goods or services with little or no initial competition.
Often used by marketers of high-end goods and services.

Competitor -oriented
Sainsbury’s
Next

Tesco Price Check

Marketing-orientated pricing
Jobber, 2003

Price-Quality Strategies
Kotler 2003

Premium Strategy

Medium Value

Good Value

Price and Product Launch
3 pricing strategies:
Market Skimming
Competitive pricing
Market Penetration

Market Skimming

Skimming Strategy Benefits
First, it allows a manufacturer to quickly recover its research-and-development (R&D) costs.
Second, it allows a firm to maximize revenue from a new product before competitors enter the field.
It is also a useful tool for segmenting a product’s overall market on price.
Permits marketers to control demand in the introductory stages of a product’s life cycle.
Chief disadvantage: It attracts competition.

Price Reductions
Increase Market Share

Market Penetration

Penetration Pricing Strategy
Sets a low price as a major marketing weapon.
Retailers may use penetration pricing to lure shoppers to new store.
Works best for goods or services characterized by highly elastic demand.
May be appropriate in market situations in which introduction of a new product will likely attract strong competitors.

Everyday Low Pricing
Closely related to penetration pricing.
A strategy devoted to continuous low prices
Retailers like Wal-Mart compete by consistently offering consumers low prices on a broad range of items.

Competitive Pricing

Competitive Pricing
Reduce the emphasis on price competition by matching other firms’ prices and concentrating their own marketing efforts on the product, distribution, and promotion elements of the marketing mix.
A price reduction results in financial effects throughout an industry as other firms match the drop.
Nearly two-thirds of all firms set prices using competitive pricing

Price Quotations
Depends on:
Competitive trends,
Cost structures,
Traditional practices,
Policies of individual firms.
Most price structures are built around list prices—the rates normally quoted to potential buyers.

Reductions
Cash Discounts
Reductions in price in exchange for prompt payment of bills.
Usually specify exact time periods.
Trade
Discounts
Payments to channel members for performing marketing functions
The Robinson-Patman Act allows trade discounts as long as all buyers in the same category receive the same discount privileges.
Quantity
Discounts
Price reductions granted for large-volume purchases.
Justify these discounts on the grounds that large orders reduce selling expenses.
May specify either cumulative or noncumulative terms:
Cumulative quantity discounts reduce prices in amounts determined by purchases over stated time periods.
Noncumulative quantity discounts provide one-time reductions in the list price
Many businesses have come to expect quantity discounts from suppliers.
Marketers typically favor combinations of cash, trade, and volume discounts.

Reductions
(Continued)
Allowances
Resemble discounts by specifying deductions from list price.
Major categories of allowances are trade-ins and promotional allowances.
Rebates
A refund of a portion of the purchase price.
Appear most prominently in automobile promotions

Methods of Handling
Transportation Expenses
The buyer pays all transportation charges.
The seller pay all transportation charges.
The buyer and the seller share the charges.

Four Basic Types of Pricing Policies
Psychological Pricing
Price Flexibility
Product-line Pricing
Promotional Pricing

Psychological Pricing
Belief that certain prices or price ranges make products more appealing.
Odd Pricing, marketers set prices at odd numbers just under round numbers.
Unit pricing states prices in terms of some recognized unit of measurement.
9.99 instead of 10
7 instead 8

Price Flexibility
Variable pricing is more likely to be applied in marketing programs based on individual bargaining.
May conflict with provisions of the Robinson-Patman Act.
May also lead to retaliatory pricing by competitors.
May stir complaints among customers.

Product-Line Pricing
The practice of setting a limited number of prices for a selection of merchandise.
Retailers practice extensive product-line pricing.
A potential problems with product-line pricing is that once marketers decide on a limited number of prices to use as their price lines, they may have difficulty making price changes on individual items.

Promotional Pricing
A lower-than-normal price is used as a temporary ingredient in a firm’s selling strategy.
Retailers rely most heavily on promotional pricing.
Loss Leaders:
goods priced below cost.
States with unfair-trade laws prohibit the practice.
Leader Pricing:
Prices slightly above cost.

Promotional Pricing Pitfalls
Some buyers are not attracted by promotional pricing.
By maintaining an artificially low price for a period of time, marketers may lead customers to expect it as a customary feature of the product.

Three Export Pricing Strategies
Standard Worldwide Price
Dual Pricing
Market-Differentiated Pricing

Influences on the Internet on Pricing
Cannibalization secures additional sales through lower prices that take sales away from the marketer’s other products.
Bots, also known as robots or shopbots, act as comparison shopping agents.
Bundle pricing is offering two or more complementary products and selling them for a single price.

Consumer considerations
Customer psychology important:
Need to pay
Price expectations:
- market segment: some price range in mind
- fair/just price: perceptions of cost
- past prices: as remembered
- quality perceptions
- value for money:
- (price, quality, service, image)

Strategic considerations
FOCUSED
LOW COST ---------------------------”NICHE”-------------------------- HIGH COST

Lowest Cost Provider

VFM as a key value proposition

VFM as a key value proposition

VFM as a key value proposition

Differentiation

McDonalds

Niche
Gilbert

PLC – relationship with Price
Sales
Profits
Sales & profits
Investment
Development
Introduction
Growth
Maturity
Decline
Time
Introductory offers
Higher price/ special offers
Price consolidation
Discounting

In Summary
Compared alternative pricing strategies.
Described how prices are quoted.
Identified pricing policy decisions that marketers make.
Related price to consumer perceptions of quality.
Contrasted competitive bidding and negotiated prices.
Explained the importance of transfer pricing.
Compared the three alternative global pricing strategies.
Related the concepts of cannibalization, bundle pricing, and bots to online pricing strategies.