Download PRICING PROGRAMS

PRICING PROGRAMS
Marketing Strategies and Pricing Objectives

Primary Demand
Strategies
• increase number of users
• increase rate of purchase
• Reduce economic risk of
trial
• Offer better value than
competing product
forms/classes
• Enhance frequency of
consumption
• Enable use in wider rate of
situations

Selective Demand
Strategies
• Retention
• Meet competition
(establish price parity)
• Acquisition
• Undercut competition on
price
• Use price to signal
premium quality

Product-line Strategies
• Substitutes
• Complements
• Get buyers to “trade-up”
• Distinguish product-line
alternatives on
value/features
• Expand range of products
bought by existing
customers
• Attract new customers on
superior value of a system
or package of products
Different Types of Elasticity
Value of e
e> -1
Type of
elasticity
Inelastic
e= -1
e = -1
Effect on total
revenue of:
Price increase Price decrease
Increase
Decrease
Unitary elastic
No change
No change
Elastic
Decrease
Increase
Market Segment Demand Schedules
Weekly Market
Sales
Round trip
ndiscounted
fare
Units
Total
Revenue
$350.
40,000
$325.
$300.
Weekly
Sales:
business
flyers
Weekly
Sales
nonbusiness flyers
Units
Total
Revenue
Total
Revenue
Units
$14.0 mil.
24,000
$8.4 mil.
16,000
45,000
$14.6 mil.
25,000
$8.1 mil.
20,000
$6.5 mil.
51,000
$15.3 mil.
26,000
$7.8 mil.
25,000
$7.5 mil.
$5.6 mil.
Illustration of Market Demand Curve
$350
Non
Bus
Total
Price
$325
$300
10
20
30
40
Quantity (in thousands)
50
Factors Suggesting Elastic Market Demand
Many alternative product forms or classes exist
for which the product can be substituted
 Only a small percentage of potential buyers
currently purchase or own the product because
of the price and because the product represents
a discretionary purchase
 The rate of consumption or the rate of
replacement can be increased through lower
prices

Factors Suggesting Elastic Company Demand
 Buyers have and are aware of a large
number of alternatives
 Quality differences do not exist or are not
perceived
 The supplier or brand can be changed
easily and with minimal efforts or costs
Basic Types of Pricing Programs

Penetration pricing

Parity pricing

Premium pricing
Conditions Favouring Penetration Pricing






Market demand is elastic
Company demand is elastic and competitors cannot
match our price because of cost disadvantages
The firm also sells higher margin complementary
products
A large number of strong potential competitors exist
Extensive economies of scale exist so that a variable-cost
approach can be used to set the minimum price
The pricing objective is to accomplish either of the
following:
• build primary demand
• acquire new customers by undercutting competition
Conditions Favouring Parity Pricing
Market demand is inelastic and company demand
is elastic
 The firm has no cost advantages over competitors
 There are no expected gains from economies of
scale so that the price floor is based on fully
allocated costs
 The pricing objective is to meet the competition

Conditions Favouring Premium Pricing
Company demand is inelastic
 The firm has no excess capacity
 There are very strong barriers to entry
 Gains from economies of scale are relatively
minor so that the full-cost method is used to
determine the minimum price
 The pricing objective is to attract new customers
based on quality

Pricing Programs for Complementary
Products
 Leader pricing
 Price bundling
• Mixed leader bundling
• Mixed joint bundling
Considerations
Involved in a
Pricing Program
PRICING PROGRAMS
• Penetration
• Parity
• Premium
ELASTICITY OF
DEMAND
COMPETITORS’
ACTIONS
COSTS AND
PROFITABILITY
CROSS-ELASTICITY
• Substitutes
• Complements
CONTRIBUTION
TO ACHIEVING
MARKETING
STRATEGY
PRICING PROGRAMS
Pricing
Objectives
MARKETING
STRATEGY
Elasticity
of Demand
SITUATION
ANALYSIS
Pricing
Programs
• Penetration
• Parity
Competitive • Premium
Situation
Cost
Factors
Productline
Factors
International
Considerations
ADVERTISING
PROGRAMS
Price
Level
DIRECT
MARKETING
AND SALES
PROMOTION
PROGRAMS
Legal
Considerations
SALES AND
DISTRIBUTION
PROGRAMS