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Transcript
Marketing Strategy Planning Process Narrowing down to focused strategy with quantitative and qualitative screening criteria Customers Needs and other Segmenting Dimensions Company Mission, Objectives, & Resources Targeting & Segmentation S. W. O. T. Positioning & Differentiation Competitors Current & Prospective External Market Environment Technology Political & Legal Social & Cultural Economic Strategy Planning for Price • Pricing objectives • Pricing Policies – Price Flexibility – Levels over PLC – Discounts and allowances – Geographic terms • Legal factors Strategy Planning for Price • Pricing objectives • Pricing Policies – Price Flexibility – Levels over PLC – Discounts and allowances – Geographic terms • Legal factors • Markup chain in channels • Costs • Demand (price sensitivity) – Competition/Substitutes • Price of other products in line Pricing Objectives Profit Oriented Pricing Objectives Target Return Maximize Profits Pricing for Target Return Pricing Objectives Profit Oriented Pricing Objectives Sales Oriented Target Return Maximize Profits Dollar or Unit Sales Growth Growth in Market Share Pricing Objectives Profit Oriented Pricing Objectives Sales Oriented Status Quo Oriented Target Return Maximize Profits Dollar or Unit Sales Growth Growth in Market Share Meeting Competition Nonprice Competition Nonprice Competition Price Flexibility Policies One-Price Policy Same price to all customers Simplicity Price Flexibility Policies One-Price Policy Flexible Pricing Same price to all customers Negotiation Simplicity Selling costs Signals to competitors Customer dissatisfaction Robinson-Patman Act and Price Discrimination Injury to Competition Key Considerations Robinson-Patman Act and Price Discrimination Injury to Competition Meeting Competition Key Considerations Robinson-Patman Act and Price Discrimination Injury to Competition Meeting Competition Key Considerations Proportionately Equal Basis Price Level Policies Price Skimming Price Sell at high price before reducing to next price level and repeat Initial Price In price skimming, initial price is set high--at top of the demand curve Most sensible when: • Demand is inelastic Second Price • There is an “elite market” that is less price sensitive Final Price • Barriers to entry (patents, etc.) • Gradually working down the demand curve with lower priced marketing mixes over time. Quantity Price Level Policies Penetration Pricing Penetration pricing means Price entering the market with a low initial price: • Capture market share quickly • Take advantage of growth • If competition is likely to follow quickly, or if • A low price will give competitors less incentive to enter Whole market price Quantity Value Pricing Value Pricing Discounts Reduce the Price Paid Quantity Seasonal Discount Pricing Sale Discounts are usually defined as a percentage off of a list price Cash Trade Quantity Discounts Quantity Discount Pricing Quantity discounts reward bigger buyers • Cumulative discounts encourage repeat purchases/relationships • Frequent flyer clubs are an example • Non-cumulative discounts encourage large orders Seasonal Discounts Shift Demand Quantity Seasonal Discount Pricing Seasonal discounts encourage purchases earlier than demand (shifts storing costs, smoothes production, etc.) Seasonal Discounts Cash Discounts for Early Payment Quantity Seasonal Discount Pricing Cash Cash discounts encourage customers to pay invoices earlier example: 2/30 net means 2 percent discount off invoice face if paid within 30 days Discounts Reduce the Price Paid Quantity Seasonal Discount Pricing Cash Trade discounts reflect jobs done by middlemen … and usually are pretty much standardized by expected margins Trade Discounts Reduce the Price Paid Quantity Seasonal Discount Pricing Sale Cash Temporary price cuts to shift demand (rebates, trade deals, etc.) WAY OVERUSED! Trade Advertising (or Promotion) Allowances Advertising Allowance Common Kinds of Allowances Advertising or promotion allowance is a reduction from amount due to compensate middleman for promotion expenses, often as a percentage of total sales dollars Stocking Allowances Advertising Allowance Stocking Allowance Common Kinds of Allowances Stocking allowances (also known as slotting fees or even failure fees) are payments to wholesalers or retailers to stock unproven new products (I.e., “rent” for shelf space) Trade-in Allowances Advertising Allowance Stocking Allowance Common Kinds of Allowances Trade-in allowances are relatively uncommon but in some business markets are critical Brokers often develop to get rid of used products Trade-In Allowance Push Money Allowances Advertising Allowance Stocking Allowance Common Kinds of Allowances Push Money Allowance Trade-In Allowance Push money or “spiff money” is an allowance that is usually passed on to salespeople for pushing a particular product Free on Board F.O.B. Common Geographic Pricing Policies F.O.B. means “free on board” (e.g., at some place such as a factory, warehouse, destination,etc.) Simplifies pricing, but may narrow market if customer must pay the freight and take risk of shipping product Zone Pricing F.O.B. Zone Common Geographic Pricing Policies Zone pricing sets some “average” price that is used anywhere within a specific geographic zone (I.e., may be a whole country or region), but prices differ between zones Uniform Delivered Pricing F.O.B. Zone Common Geographic Pricing Policies Uniform Delivered Making an average freight charge to all customers, usually used when transportation costs are low or for simplicity (nationally advertised prices, etc.) Freight Absorption F.O.B. Zone Common Geographic Pricing Policies Uniform Delivered Freight Absorption Seller absorbs freight costs to meet the prices of the nearest competitor … amounts to price cutting to appeal to distant customers Markups Wholesaler 50.00 30.00 Producer 24.00 Markup = 20.00 = 40% Markup = 6.00 = 20% Markup = 2.40 = 10% Cost = 30.00 = 60% Cost = 24.00 = 80% Cost = 21.60 = 90% Markup is usually stated as a percent of the selling price, not of the cost Markup Considerations Types of Costs Fixed Costs Rent Depreciation Manager’s salaries Property taxes Insurance Types of Costs Fixed Costs Variable Costs Rent Raw materials Depreciation Component parts Manager’s salaries Hourly wages Property taxes Packaging & freight Insurance Sales commisions Break Even Analysis Total Revenue and Cost Higher Profit Area Total Revenue Curve Total Cost Curve Break-Even Point Loss Area 0 More Units of Production Consumer Demand is Related to Price Sensitivity Key Issues Availability of Substitutes Comparison Difficulty Who Pays? Size of Total Expenditure Significance of End Benefit Sunk Investment Switching Costs Value in-Use Pricing Value-in-Use Types of Demand-Oriented Pricing Sets the price, at least in part, based on what a product will be worth to the customer but capturing all of the value-in-use may be very difficult Value in-Use Pricing Reference Pricing Value-in-Use Reference Types of Demand-Oriented Pricing Reference price is what customer expects to pay … based on competing products, substitutes, past experience, framing, etc. Reference price may be easy or hard to change Reference Pricing Demand-Backward Pricing Value-in-Use Reference Types of Demand-Oriented Pricing DemandBackward Figure out reference price or roughly what customer expects to pay and then design to meet that price Demand-Backward Pricing Price Lining Value-in-Use Reference Types of Demand-Oriented Pricing Pricing with several price lines (high, medium, low, etc.) to simplify comparisions for shopping products DemandBackward Price Lining Leader Pricing Value-in-Use Reference Types of Demand-Oriented Pricing DemandBackward Price Lining Pricing a product very low to draw customer traffic and sales of other products. Leader Prestige Pricing Value-in-Use Reference Prestige Types of Demand-Oriented Pricing DemandBackward Price Lining Used when price is a signal of quality--or where buyers can really tell a difference! Leader Prestige Pricing Odd-Even Pricing Value-in-Use Odd-Even Prestige Using certain numbers-such as 5 or 9--as the last digit in a price to make the product seem less expensive. Reference Types of Demand-Oriented Pricing DemandBackward Price Lining Leader Marginal Analysis Shows the Profit Maximizing Price Marketing Strategy Planning Process Narrowing down to focused strategy with quantitative and qualitative screening criteria Customers Needs and other Segmenting Dimensions Company Mission, Objectives, & Resources Targeting & Segmentation S. W. O. T. Positioning & Differentiation Competitors Current & Prospective External Market Environment Technology Political & Legal Social & Cultural Economic
