Developing Market Strategies - Part 2 of 5
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This document outlines the key steps in developing pricing strategies: 1. Selecting a price objective such as survival, maximum profit, or market share. 2. Determining demand through surveys, price experiments, and statistical analysis to estimate demand curves and price elasticity. 3. Estimating costs including fixed, variable, average, and using techniques like experience curves and target costing. 4. Analyzing competitors' costs, prices, and offers to determine an appropriate pricing method such as markup pricing, target pricing, or value pricing that is consistent with company policies and impacts other parties.
Developing Market Strategies - Part 2 of 5
- 2. How should a company set prices initially?
- 4. Step 1: Selecting the Price Objective
- 5. Survival
- 8. Maximum Market Skimming Starting at high prices and slowly dropping it over time
- 9. Product Quality Leadership Setting price high enough to establish itself as quality leader
- 10. Other objectives May include anything from public service to service by public
- 11. Step 2: Determining Demand Each price will lead to a different demand Normally price and demand have an inverse relationship.
- 12. However for prestige goods sometimes the relation is direct. More the price more the demand
- 13. Price Sensitivity Generally consumers are less sensitive to low cost items
- 14. Other factors leading to less price sensitivity The product is more distinctive. Buyers are less aware of substitutes or cannot easily compare them Expenditure is smaller part of buyer’s income Expenditure is small compared to total cost of end product Part of the cost is borne by another party The product is used in conjunction with assets previously bought The product is assumed to have more quality or prestige
- 16. @Surveys
- 17. @Price Experiments Vary price geographically Vary prices on different products in a store Use the internet.
- 19. Price Elasticity of Demand
- 22. Types of costs • Fixed cost • Variable Costs • Total Costs – Sum of Fixed and Variable • Average Cost – Cost per unit
- 24. Accumulated Production – The Experience Curve As workers become more experienced the average cost decreases
- 25. Target Costing Marketers research a new product’s desired functions and the price it will sell. The firm must examine all its cost elements and bring down costs in the target range.
- 26. Step 4: Analyzing Competitors' Costs, Prices and Offers
- 27. If the firm’s offer contains features not offered by its nearest competitor, it should its worth add that to the competitor’s price. If the competitor’s offer contains features not offered by the firm then it should subtract their value from its own price
- 28. Step 5: Selecting a Pricing Method Unit cost = Variable Cost + Fixed Cost Unit Sales
- 29. Markup Pricing = Unit Cost (1-desired return on sales) Target Return = Pricing Unit cost + (Desired return) X (invested capital) Unit Sales
- 30. Perceived Value Pricing 500 for the Tee 500 for the Tee 1000 for the
- 31. Value Pricing Setting low prices without sacrificing quality to attract large no of customers
- 34. Auction type Pricing English Auctions (ascending bids) Dutch Auctions (descending bids) Sealed-bid Auctions
- 35. Step 6: Setting the Final price
- 36. Impact on other marketing activities Price must not have a negative impact on company’s image
- 37. Company Pricing Policies Must be consistent with company policies
- 39. Impact of price on other parties Dealers Distributers Sales Team
- 41. Created by Ronak Jain, NIT Surat, during an internship by Prof. Sameer Mathur, IIM Lucknow. www.IIMInternship.com