Chapter 14 developing pricing strategies
Download as PPT, PDF0 likes801 views
This document outlines the six steps in setting a pricing policy: 1. Select the pricing objective such as maximum current profit or market share. 2. Determine demand by analyzing price sensitivity factors. 3. Estimate fixed and variable costs. 4. Analyze competitors' costs, prices, and offers to determine relative value. 5. Select a pricing model such as mark-up or target-return pricing. 6. Consider additional factors like marketing activities and company policies to set the final price.
Chapter 14 developing pricing strategies
- 1. DEVELOPING PRICING STRATEGIES AND PROGRAMS VENUS D. PASCUAL February 04, 2014
- 2. OUTLINE 1. What is a Price? 2. Six Steps in Setting a Pricing Policy
- 3. What is a PRICE? • • • • Produce revenue; others produce costs Easy to adjust Not just a number in a tag Refers to payment for goods and services
- 4. 6 Steps in Setting Pricing Policy 1. Select the pricing objective 2. Determine demand 3. Estimate costs 4. Analyze competitor’s costs, prices and offers 5. Select a pricing model 6. Select the final price
- 5. Price-Adaptation Strategies 1. 2. 3. 4. Geographical pricing Price discounts and allowances Promotional pricing Discriminatory pricing
- 6. Step 1 - Select the Pricing Objective 1. 2. 3. 4. 5. Survival Maximum current profit Maximum market share Maximum market skimming Product-quality leadership
- 7. Step 1 - Select the Pricing Objective: Survival Company conditions – • Overcapacity • Intense competition • Changing consumer wants
- 8. Step 1- Select the Pricing Objective: Maximum Current Profit • Compare Demand and Costs vs. Alternative Price • Then, choose price with maximum profit, cash flow, or ROI
- 9. Step 1 - Select the Pricing Objective: Maximum Market Share Market-Penetration Pricing Principle: - Higher sales volume means lower unit costs and higher long-run profit When to adopt? • market is highly priced sensitive
- 10. Step 1 - Select the Pricing Objective: Maximum Market Share When to adopt “Market-Penetration Pricing Principle”? • market is highly priced sensitive • production and distribution costs fall • low price discourages actual and potential competition
- 11. Step 1 - Select the Pricing Objective: Maximum Market Skimming Prices start high and slowly drop over time. When to use? 2. Buyers have high current demand 3. Unit costs for small volume are high 4. High price – image of superior product
- 12. Step 2 – Determine Demand Price Sensitivity - reactions of individuals with different price sensitivities
- 13. Step 2 – Determine Demand Factors Leading to Less Price Sensitivity: 1. Product is more distinctive 2. Buyers are less aware of substitute 3. Buyers cannot easily compare the quality of substitutes 4. Expenditure is a smaller part of the buyer’s total income
- 14. Step 2 – Determine Demand Factors Leading to Less Price Sensitivity: 5. Expenditure is so small compared to the total cost of the end product 6. Part of the cost is borne by another party 7. Product is used in conjunction with assets previously bought 8. Product is assumed to have more quality, prestige, or exclusiveness
- 15. Step 2 – Determine Demand Factors Leading to Less Price Sensitivity: 9. Buyers cannot store the product 10. Buyers buy infrequently
- 16. Step 3 – Estimate Costs Fixed Costs - also known as “overhead” - do not vary with production Variable costs - total costs vary directly with production Total Costs - sum of fixed and variable costs for any given level of production
- 17. Step 4 – Analyze Competitor’s Costs, Prices & Gifts 1. If the firm’s offer contains features not offered by the nearest competitor, evaluate their worth to the customer and add that value to the competitor’s price. 2. If the competitor’s offer contains features not offered by the firm, the firm should subtract their value from its own price.
- 18. Step 5 – Select a Pricing Model 1. 2. 3. 4. 5. 6. Mark-up Pricing Target-Return Pricing Perceived-Value Pricing Value Pricing Going-Rate Pricing Auction-Type Pricing
- 19. Step 6 – Select the Final Price Factors to Consider 1. Impact of other marketing activities 2. Company Sharing Policies 3. Gain-and-Risk Sharing Pricing 4. Impact o Price on Other Parties