basic09_ppt.ppt 210KB Sep 05 2010 10:45:02 PM

Chapter Nine

Pricing: Understanding and

Capturing Customer Value

Roadmap:

Previewing the Concepts

1. Discuss the importance of understanding

customer value perceptions and company costs when setting prices.

2. Identify and define the other important internal and external factors affecting a firm’s pricing decisions.

3. Describe the major strategies for pricing imitative and new products.

4. Explain how companies find a set of prices that maximizes the profits from the total product mix.

5. Discuss how companies adjust their prices to take into account different types of customers and situations.

The Past

 _{1970s: Toys ‘R’ Us}

emerges as a toy retailing category killer, offering

greater product selection and lower prices than its small store competition.

 _{Explosive growth occurs.}  _{Late 1990s: Wal-Mart}

uses toys as a loss

leader, pricing lower than Toys ‘R’ Us and becomes

Toys ‘R’ Us – Pricing for Success

Toys ‘R’ Us – Pricing for Success

Case Study

Case Study

The Present

 _{Toys ‘R’ Us tries price}

matching and fails

miserably, losing sales, profit, and market share.

 _{New ownership closes}

stores, cut costs, and steps away from the price war.

 _{Efforts focus on top-selling,}

higher margin or exclusive items, store atmosphere, shopper experiences, and

What Is a Price?



_Narrowly,

_{price is the amount of money}

charged for a product or service.



_Broadly

_,

_{price is the sum of all the}

values that consumers exchange for

the benefits of having or using the

product or service.

Major Considerations in

Setting Price



_{Customer perceptions of value}



_{Other internal and external}

considerations

– _{Marketing strategy, objectives, mix} – Nature of the market and demand – _{Competitors’ strategies and prices}

Customer Value Perceptions



_{Customer-oriented pricing:}

– Involves understanding how much value consumers place on the benefits they

receive from the product and setting a price that captures that value.



_{Value-based pricing:}

– Uses buyers’ perceptions of value, not the seller’s cost, as the key to pricing.

• Good value pricing

Internal Factors Affecting

Pricing Decisions



_{Company and Product Costs:}

– Fixed Costs:

• Costs that do not vary with production or sales level.

– _{Variable Costs:}

• _{Costs that vary directly with the level of} production.

Cost-Based Pricing



_{Cost-plus pricing}

– Adding a standard markup to the cost of the product



_{Break-even pricing}



_{Target-profit pricing}

Internal Factors Affecting

Pricing Decisions



_{Marketing Objectives:}

– Company must decide on its strategy for the product.

– _{General pricing objectives:}

• _Survival

• _{Current profit maximization} • _{Market share leadership}

Internal Factors Affecting

Pricing Decisions



_{Marketing Mix Strategy:}

– Price decisions must be coordinated with product design, distribution, and

promotion decisions to form a consistent and effective marketing program.

– _{Target costing:}

• _{Pricing that starts with an ideal selling} price, then targets costs that will ensure that the price is met.

Internal Factors Affecting

Pricing Decisions



_{Organizational Considerations:}

– Must decide who within the organization should set prices.

– _{This will vary depending on the size and} type of company.

External Factors Affecting

Pricing Decisions



_{The Market and Demand:}

– Costs set the lower limit of prices while the market and demand set the upper limit.

– Pricing in different types of markets:

• Pure competition

• Monopolistic competition

• Oligopolistic competition

• Pure monopoly

– Analyzing the price-demand relationship –

External Factors Affecting

Pricing Decisions



_{Competitors’ Strategies and Prices}

– How does the market offering compare? – How strong is competition and what is

their pricing strategy?

– _{How does competition influence price} sensitivity?

New-Product Pricing Strategies

 _{When to Use:}

– Product’s quality and image must support its higher price.

– Costs of low volume cannot be so high they cancel the advantage of charging more.

– Competitors should not be able to enter market easily and

 _{Market Skimming:}

– Set a high price for a new product to

“skim” revenues layer by layer from the market.

– Company makes fewer, but more profitable sales.

New-Product Pricing Strategies

 _{When to Use:}

– Market is highly price sensitive so a low

price produces more growth.

– Costs must fall as sales volume

increases.

– Need to keep

competition out or effects are only

 _{Market Penetration:}

– Set a low initial price in order to

“penetrate” the

market quickly and deeply.

– Can attract a large number of buyers quickly and win a large market share.

Product Mix Pricing Strategies



_{Product line pricing}



_{Optional-product pricing}



_{Captive-product pricing}



_{By-product pricing}

Product-Line Pricing



_{Involves setting price steps between}

various products in a product line

based on:

– _{Cost differences between products}

– Customer evaluations of different features

Optional- and

Captive-Product Pricing



_{Optional-Product}

– Pricing optional or accessory products

sold with the main product (e.g., ice maker with the refrigerator).



_{Captive-Product}

– Pricing products that must be used with the main product (e.g., replacement

By-Product and Product

Bundle Pricing Strategies



_{By-Product Pricing}

– Pricing low-value by-products to get rid of them (e.g., animal manure from zoo).



_{Product Bundle Pricing}

– Pricing bundles of products sold together (software, monitor, PC, and printer).

Price Adjustment Strategies



_{Discount and allowance pricing}



_{Segmented pricing}



_{Psychological pricing}



_{Promotional pricing}



_{Geographical pricing}



_{Dynamic pricing}

Discounts and Allowances



_Discounts

– Cash

– Quantity – Functional – Seasonal



_Allowances

Segmented Pricing



_{Selling a product or service at two or}

more prices, where the difference in

prices is not based on differences in

costs.



_Types:

1. Customer-segment 2. Product-form

3. Location pricing 4. Time pricing

Psychological Pricing



_{Considers the psychology of prices}

and not simply the economics.



_{Consumers usually perceive}

higher-priced products as having higher

quality.



_{Consumers use price}

_less

_{when they}

can judge the quality of a product by

examining it or recalling experiences.

Promotional Pricing



_{Cash Rebates}



_{Special-Event}

Pricing



_{Loss Leaders}



_Low-Interest

Financing



_Longer

Warranties

Geographical Pricing



_{FOB-origin pricing}



_{Uniform-delivered pricing}



_{Zone pricing}



_{Basing-point pricing}

Dynamic Pricing



_{Adjusting prices continually to meet}

the characteristics and needs of

International Pricing



_{Price depends on many factors,}

including:

– Economic conditions – _{Competitive situations} – Laws and regulations

– Development of the wholesaling and retailing system

Initiating Price Changes



_{Price Cuts:}

– Excess capacity

– Falling market share

– Dominate market through lower costs



_{Price Increases:}

– Cost inflation – Overdemand

Responses to Price Changes



_{Buyer reactions to price changes}



_{Competitor reactions to price changes}



_{Firm responses to price changes:}

– _{Reduce price to match competition}

– Raise the perceived quality of its offer – _{Improve quality and increase price}

Public Policy and Pricing



_{Price fixing}



_{Predatory pricing}



_{Price discrimination}



_{Retail price maintenance}



_{Deceptive pricing}

– _{Promotion price reductions} – _{Scanner fraud}

Rest Stop: Reviewing the Concepts

1. Discuss the importance of understanding

customer value perceptions and company costs when setting prices.

2. Identify and define the other important internal and external factors affecting a firm’s pricing decisions.

3. Describe the major strategies for pricing imitative and new products.

4. Explain how companies find a set of prices that maximizes the profits from the total product mix.

5. Discuss how companies adjust their prices to take into account different types of customers and situations.

Dynamic Pricing



_{Adjusting prices continually to meet}

the characteristics and needs of

International Pricing



_{Price depends on many factors,}

including:

–

Economic conditions

–

_{Competitive situations}

–

Laws and regulations

–

Development of the wholesaling and

retailing system

Initiating Price Changes



_{Price Cuts:}

–

Excess capacity

–

Falling market share

–

Dominate market through lower costs



_{Price Increases:}

–

Cost inflation

Responses to Price Changes



_{Buyer reactions to price changes}



_{Competitor reactions to price changes}



_{Firm responses to price changes:}

–

_{Reduce price to match competition}

–

Raise the perceived quality of its offer

–

_{Improve quality and increase price}

–

_{Launch a low-price “fighting brand”}

Public Policy and Pricing



_{Price fixing}



_{Predatory pricing}



_{Price discrimination}



_{Retail price maintenance}



_{Deceptive pricing}

–

_{Promotion price reductions}

–

_{Scanner fraud}

Rest Stop:

Reviewing the Concepts

1. Discuss the importance of understanding

customer value perceptions and company costs when setting prices.

2. Identify and define the other important internal and external factors affecting a firm’s pricing decisions.

3. Describe the major strategies for pricing imitative and new products.

4. Explain how companies find a set of prices that maximizes the profits from the total product mix.

5. Discuss how companies adjust their prices to take into account different types of customers and situations.