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STRATEGIC PRICING ISSUES

STRATEGIC PRICING ISSUES. At the end of this module, the learning outcomes are: Role of pricing as a strategic tool How pricing can be used as a tactical tool. STRATEGIC PRICING ISSUES. Strategic Marketing management By Wilson and Gilligan, Chapter 12. STRATEGIC PRICING ISSUES. PRICING

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STRATEGIC PRICING ISSUES

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  1. STRATEGIC PRICING ISSUES At the end of this module, the learning outcomes are: • Role of pricing as a strategic tool • How pricing can be used as a tactical tool

  2. STRATEGIC PRICING ISSUES Strategic Marketing management By Wilson and Gilligan, Chapter 12

  3. STRATEGIC PRICING ISSUES PRICING • Most controllable and flexible part of the marketing mix • Key component of an organization’s marketing strategy • Has strategic roles • Has tactical roles

  4. STRATEGIC PRICING ISSUES STRATEGIC ELEMENT OF PRICING • Significant strategic variable • Principal determinant of consumer choice • Choice of pricing depends on • Corporate goals and objectives • Customer characteristics • Intensity of inter-firm rivalry • Phase of product life-cycle

  5. STRATEGIC PRICING ISSUES STRATEGIC ROLE OF PRICING • Skimming strategy • Penetration pricing strategy • Differential pricing strategy • Product line pricing strategy • Premium pricing strategy • Contributory pricing

  6. STRATEGIC PRICING ISSUES Skimming strategy • Useful when • Quality has direct linkages with price • Enhances customer’s status in the society • Perceived as a ‘high technology’ product • Objective is to • Achieve early break-even point • Maximize profits in short-term

  7. STRATEGIC PRICING ISSUES Skimming strategy-INTEL • Focus on R & D • Large investments • Shorter product life-cycle • Recover investments in short period • Initially artificially high price • Skim the market • Gradually reduce to build volumes

  8. STRATEGIC PRICING ISSUES Penetration pricing strategy • Opposite of skimming • Gain foothold and market share • Prices lower than competitors • Results • Large and growing market • Not very high brand loyalty • Intense competition • Price quality association is not very strong

  9. STRATEGIC PRICING ISSUES Penetration pricing-AIWA • Late entrant in the television market • Priced lower than competition • Sourcing from China • Replacement schemes • Financing schemes • Buy a AIWA television for as little as Rs 10/ a day. AIWA became No 3 player in the market

  10. STRATEGIC PRICING ISSUES Differential pricing strategy • Different prices to different segments of the market • Works effectively when different segments do not communicate with each other • Hospitals • Lawyers

  11. STRATEGIC PRICING ISSUES Product line pricing strategies • Price bundling • Premium pricing • Loss leadership pricing • Two-part pricing

  12. STRATEGIC PRICING ISSUES Price bundling • Prices of two offerings • Combined into one • Unique benefits

  13. STRATEGIC PRICING ISSUES Price bundling-Airtel • Initial years • Single offering • Consisting of airtime and handset prices • Element of subsidy in handset • Recovered through airtime

  14. STRATEGIC PRICING ISSUES Premium pricing Titan • Priced above HMT • Positioned as an ornament • Unique features • Image

  15. STRATEGIC PRICING ISSUES Loss leadership pricing • Dropping price to generate traffic • Hope customers will buy other products • Make profits on those products

  16. STRATEGIC PRICING ISSUES Loss leadership pricing McDonald’s Rs 7/ ice cream • Build traffic • Customers buy other products • High margin on other products

  17. STRATEGIC PRICING ISSUES Two-part pricing • Combination of two types of pricing • It could be premium and penetration

  18. STRATEGIC PRICING ISSUES Two-part pricing HP printers in India • Initial prices of HP printers were kept low • Induce buying • Penetration pricing • Printers require consumables like cartridges • High prices for cartridges • Premium pricing • Aim is to induce buying and make money on other products

  19. STRATEGIC PRICING ISSUES Contributory pricing • Industry face boom and recession • Recessionary conditions • Excess capacity • Full pricing not possible • What to do? • Contributory pricing • Price higher than variable costs • Positive contribution covers a part of your fixed costs

  20. STRATEGIC PRICING ISSUES Contributory pricing Airlines industry • Face problems of excess capacity • High break-even point • recession • Contributory pricing to tide over crisis • Prices sometimes start from as low as Rs 299/-

  21. STRATEGIC PRICING ISSUES TACTICAL ELEMENT OF PRICING • Flexibility • Well-suited • This could be • Discounts • Off season • Quantity • Competitive bidding

  22. STRATEGIC PRICING ISSUES Pricing strategy of The Economic Times • Circulation in 1990-1 lakh plus • Liberalization • Entry of foreign players • Media sector was opening up • Threat from electronic/Satellite/cable television

  23. STRATEGIC PRICING ISSUES • Readers more interested in financial news • Buoyancy in business and economic conditions • Increase in disposable incomes • General newspapers expanding business sections • Launch of new newspapers • Management feels it is the time to revamp

  24. STRATEGIC PRICING ISSUES PRODUCT CHANGES • Increase news coverage • Larger target audience • Two color sections • Brand equity • ET Esquire • Color changed from off-white to salmon pink. • Trend of all international financial newspaper

  25. STRATEGIC PRICING ISSUES PRICE • Hiked from Rs 2.5 to Rs 4.25 per day • Price hike • Meet additional cost • Differentiation • Squeeze customer’s wallet • ET the first choice of readers • Reader buying more financial newspaper forced to drop second and third financial dailies. • Circulation increases to over 1.6 lakhs by June 93

  26. STRATEGIC PRICING ISSUES 1990 ORG data • Middle class market growing at the rate of 10% per annum. NRS survey revealed • Each copy of economic times is read by five individuals • Figure is three for general newspaper • Consumerism on the rise • Rising stock markets

  27. STRATEGIC PRICING ISSUES Understanding consumer insights • 1.6 lakh circulation • Five readers for every paper bought • 8 lakh readers • How to convert readers into buyers • Induce trial • Invitation price of Rs 2/- • Low price, new readers

  28. STRATEGIC PRICING ISSUES Understanding consumer insights • Once a habit, he will begin buying • Which day to choose • Chose Wednesday • Why • Peak business activity • Provide supplements • Brand equity • More value for money • Induce him for trial

  29. STRATEGIC PRICING ISSUES Understanding consumer insights • Price revised to Rs 4.9/- on other days • Why • Most customers • Newspaper is bought as a monthly product • Bills settled on a monthly basis. • As long as monthly bill remains same, customer are unlikely to be very sensitive to such changes

  30. STRATEGIC PRICING ISSUES Result • Instant success • Circulation up by 70% in six weeks • Advertisement tariff increased by 15% • In Calcutta • Invitation price extended on Friday • To counter Business Standard • Stronghold area of Business Standard

  31. STRATEGIC PRICING ISSUES • Encouraging response • Invitation price on all weekdays • Derived price on weekend is Rs 10/ (if monthly bill is same)

  32. STRATEGIC PRICING ISSUES Other considerations • Increase sale on weekdays • Lowers on weekends • Shift demand • New entrants would find it difficult to enter and compete at Rs2/- price of Economic Times • Preempt competition

  33. STRATEGIC PRICING ISSUES • How much drop on weekends • Major sale is institutional • Rs 10/- price does not makes any major difference to institutional customers • About 10% drop on Sunday • Compensated by increase in tariff on weekdays

  34. STRATEGIC PRICING ISSUES Management’s assessment • Do not foresee a price war by any other competitor • No one would take a market leader head on in a price war. • Competitors need to have deeper pockets to sustain a price war • Unlikely to happen • Media sector was not open to FDI

  35. STRATEGIC PRICING ISSUES Conclusion • Circulation over 5 lakhs • Innovative pricing strategy • Studying consumer insights • Strong market leader • Shifting demand to weekdays • Higher circulation on weekdays • Business model based on advertisement tariff • Tariff depends on circulation

  36. STRATEGIC PRICING ISSUES Conclusion • Innovative pricing strategy and study of consumer insights were major reasons for success of The Economic Times • How market leaders maintain their leadership

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