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Transcript
DEVELOPING PRICING STRATEGIES AND PROGRAMS Ms.Kiran Sharma CHAPTER QUESTIONS How do consumers process and evaluate prices? How should a company set prices initially for products or services? How should a company adapt prices to meet varying circumstances and opportunities? When should a company initiate a price change? How should a company respond to a competitor’s price challenge? GILLETTE COMMANDS A PRICE PREMIUM SYNONYMS FOR PRICE Rent Tuition Fee Fare Rate Toll Premium Honorarium Bribe Dues Salary Commission Wage Tax COMMON PRICING MISTAKES Determine costs and take traditional industry margins Failure to revise price to capitalize on market changes Setting price independently of the rest of the marketing mix Failure to vary price by product item, market segment, distribution channels, and purchase occasion CHANGING PRICING ENVIRONMENT For Buyers Get instant price comparisons from thousands of vendors – (www.mySimon.com) Name their price and have it met – (www.priceline.com) Get products free For Sellers Monitor customer behavior and tailor offer to individuals Give certain customers access to special prices Both Buyers and Sellers may Negotiate prices in Online auctions and exchanges CONSUMER PSYCHOLOGY AND PRICING Reference Prices Price-quality inferences Price cues POSSIBLE CONSUMER REFERENCE PRICES “Fair price” Last price paid Upper-bound price Lower-bound price Competitor prices Expected future price Usual discounted price CONSUMER PERCEPTIONS VS. REALITY FOR CARS Overvalued Brands Land Rover Kia Volkswagen Volvo Mercedes Undervalued Brands Mercury Infiniti Buick Lincoln Chrysler TIFFANY’S PRICE-QUALITY RELATIONSHIP PRICE CUES “Left to right” pricing (Rs.2999 vs. Rs.3000) Odd number discount perceptions Ending prices with 0 or 5 “Sale” written next to price WHEN TO USE PRICE CUES Customers purchase item infrequently Customers are new Product designs vary over time Prices vary seasonally Quality or sizes vary across stores STEPS IN SETTING PRICE Select the price objective Determine demand Estimate costs Analyze competitor price mix Select pricing method Select final price STEP 1: SELECTING THE PRICING OBJECTIVE • • Survival (overcapacity, intense competition, changing consumer wants) Maximum current profit (can estimate the demand and cost associated with alternative prices) • • • Maximum market share (market skimming) Maximum market skimming Product-quality leadership STEP 2: DETERMINING DEMAND Price Sensitivity Estimating Demand Curves Price Elasticity of Demand FACTORS LEADING TO LESS PRICE SENSITIVITY The product is more distinctive, low cost items, or items they buy infrequently. There are no or few substitutes or competitors Buyers cannot easily compare the quality of substitutes Buyers are slow to change their buying habits. Buyer do not readily notice the higher price Part of the cost is paid by another party The product is used with previously purchased assets The product is assumed to have high quality and prestige, hence feel higher price is justified. Buyers cannot store the product ESTIMATING DEMAND CURVES Surveys Price Experiments Statistical Analysis • Explore how many units consumers would buy at different proposed prices • Vary the price of different products in a store or charge different price for the same product to see how change affects sales. • Of past prices and quantities sold • Data may be longitudinal or cross sectional PRICE ELASTICITY OF DEMAND INELASTIC AND ELASTIC DEMAND STEP 3: ESTIMATING COSTS Types of Costs Accumulated Production Activity-Based Cost Accounting Target Costing COST TERMS AND PRODUCTION Fixed costs (rent, salaries) Variable costs (Raw material, microprocessor chips, packaging material) Total costs Average cost Cost at different levels of production COST PER UNIT AS A FUNCTION OF ACCUMULATED PRODUCTION TARGET COSTING - TATA MOTORS DEVELOPED ‘NANO’ ITS SMALL CAR WITH A TARGET PRICE STEP 4: ANALYZING COMPETITORS COSTS, PRICES AND OFFERS Analyze competitor in terms of financial situation, recent sales, customer loyalty, product efficacy. STEP 5: SELECTING A PRICING METHOD Markup pricing Target-return pricing Perceived-value pricing ( Buyer’s image, warranty, product performance, supplier reputation, trust) Value pricing (Higher volumes at lower prices) Going-rate pricing (competitor prices) Auction-type pricing BREAK-EVEN CHART AUCTION-TYPE PRICING English auctions Dutch auctions Sealed-bid auctions STEP 6: SELECTING THE FINAL PRICE • • • Impact of other marketing activities Company pricing policies Impact of price on other parties PRICE-ADAPTATION STRATEGIES Geographical Pricing Discounts/Allowances Promotional Pricing Differentiated Pricing PRICE-ADAPTATION STRATEGIES Countertrade Barter Compensation deal Buyback arrangement Offset Discounts/ Allowances Cash discount Quantity discount Functional discount Seasonal discount GEOGRAPHICAL PRICING - BARTER The least complex and oldest form of bilateral, non-monetary counter-trade A direct exchange of goods or services between two parties Country X Exporter/ Importer Goods/Services Country Y Exporter/ Importer 11-30 SWITCH TRADING Country Y Country X Exporter Exporter Payment or Goods/Services C 11-31 Goods/ services A Country Z Switch trader Goods/ Services B COUNTER PURCHASE Goods/Services Country Y 11-32 Country X Payment ( Hard Currency) Exporter Goods/Services Payment ( Hard Currency Exporter Country Y Exporter BUY BACK (COMPENSATION) Country X Country Y 11-33 Exporter (capital goods or technology or Licenser) Capital goods or technology Payment Output from Capital goods/ technology Payment Importer Or Licensee PROMOTIONAL PRICING TACTICS Loss-leader pricing (drop prices on well known brand) Special-event pricing Cash rebates Low-interest financing Longer payment terms Warranties and service contracts Psychological discounting (was Rs 599 Now Rs 549) DIFFERENTIATED PRICING Customer-segment pricing Product-form pricing Image pricing Channel pricing Location pricing Time pricing PRICING FOR RURAL MARKETS • • • • • • • A large proportion have a low and seasonal income Several approaches adopted by retailers and companies to address this Rural retailers often extend credit Retailers also “break the bulk” and sell in loose form, in small quantities Companies use a similar strategy by introducing “low-unit packing” or LUP Companies also develop low-priced products with a target price for rural markets Companies might offer refill packs or recyclable and reusable packs INITIATING PRICE INCREASES Delayed quotation pricing Escalator clauses Unbundling Reduction of discounts BRAND LEADER RESPONSES TO COMPETITIVE PRICE CUTS Maintain price Maintain price and add value Reduce price Increase price and improve quality Launch a low-price fighter line