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MARKETING Pricing Strategies

MARKETING Pricing Strategies. Overview. Definition of price Factors that influence the pricing decision Pricing objectives Pricing strategies over the product life cycle Three major pricing strategies and their advantages and disadvantages

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MARKETING Pricing Strategies

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  1. MARKETINGPricing Strategies Prof. Bauer-Ramazani

  2. Overview • Definition of price • Factors that influence the pricing decision • Pricing objectives • Pricing strategies over the product life cycle • Three major pricing strategies and their advantages and disadvantages • Exercises applying different pricing strategies • Pricing tactics

  3. Price -- Definition • the amount of money charged for a product or service • the sum of all the values that consumers exchange for the benefits of having or using the product or service • Examples of “price?” • Tuition, rent, fare, retainer, toll, salary, dues

  4. Factors in Setting Price

  5. Pricing Objectives

  6. Determining Prices Market Share Profit-Maximization Meet Business Objectives Cost-Oriented- Variable/Fixed • Other Pricing Objectives • Loss Containment • Survival • Customer Benefit • Social & Ethical Considerations Break-even Analysis Price-Setting Tools Economic Supply/Demand

  7. Equilibrium Price: Supply = Demand Price perflash drive/memory stick Number of flash drives/memory sticks demanded

  8. Inelastic Demand Price Electricity P2 P1 Q2 Q1 Quantity Elastic Demand Price Recreational Vehicles P2 P1 Q1 Q2 Quantity Elasticity of Demand measure of the sensitivity of demand to changes in prices not price sensitive - no real change in demand price sensitive - changes in demand

  9. Market-based Pricing • PricingExisting Products/Services- 3 options • Pricing belowmarket prices  price wars • EX: airlines, store brand vs. manufacturer’s brand • Dumping • Pricing above prevailing market prices for similar products • EX: Sony  higher price = higher quality? • Pricing at or near market prices

  10. Breakeven Analysis

  11. Breakeven Point Formula Breakeven Quantity= Fixed Costs Price/unit –Variable cost/unit (Contribution Margin)

  12. Cost-based Pricing • Estimating the per-unit cost of production • Capital(K): land, building, equipment = fixed cost(FC) • Labor (L): workers’ wages = variable cost (VC) EX: $0.50 + $0.50 =$1.00 (production cost) • Adding a mark-up • Desired profit per item: $0.50 • Sales price = cost of production + mark-up • $1.00 + $0.50 = $1.50 • 50% markup

  13. Mark-up Calculation

  14. How costs affect gasoline prices

  15. Penetration Low price establish product in the market Elastic demand; Predatory pricing Skimming High price; unique product; appeal to early adopters; Prestige pricing Recovering high R&D costs Combination Move inventory; stimulate D; extend product life Price Strategies for New Products Penetration Price Strategy PRICE Skimming Price Strategy PRICE Skimming > Penetration PRICE

  16. Pricing of iPhones

  17. Wal-Mart launches a new range of own-label soups. Cunard launches two new cruise ships. A cable TV provider moves into a new area and needs to achieve a market share. Holiday Inns try to fill hotels during winter weekends. Burger King introduces a new range of value meals. Nokia launches a new videophone. ExerciseSelect the appropriate pricing strategy. Explain your choice.

  18. Pricing Tactics • Price Lining • Setting a limited number of prices for certain categories of products • Psychological Pricing • Pricing to take advantage of the fact that consumers do not always respond rationally to stated prices • Discounting • Price reductions offered as an incentive • to purchase • High tech Pricing: giving it away!

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