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Developing price strategies and programs

Developing price strategies and programs. “Pricing is where management feel the most pressure to perform, and the least certain they are of doing a good job” Professor Robert Dolan (Harvard) :1995

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Developing price strategies and programs

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  1. Developing price strategies and programs AssignmentPoint.com

  2. “Pricing is where management feel the most pressure to perform, and the least certain they are of doing a good job” Professor Robert Dolan (Harvard) :1995 Price = The amount of money charged for a product or service, or the sum of the values that consumers exchange for the benefits of having or using the product or service. AssignmentPoint.com

  3. Six-step process in setting company’s pricing policy 1. Selecting the pricing objective 2. Determining Demand 3. Estimating cost 4. Analyzing competitors’ costs, prices and offers 5. Selecting a pricing method 6. Selecting the final price AssignmentPoint.com

  4. 1. Selecting the pricing objective 1. Market-penetration pricing 2. Market-skimming pricing AssignmentPoint.com

  5. Price Price P2 P’2 P1 P’1 Q2 Q1 Q2 Q1 Quantity Demanded per Period Quantity Demanded per Period 2. Determining demandPrice elasticity of demand • A. Inelastic Demand - • Demand Hardly Changes With • a Small Change in Price. • Little substitutes • small proportion of income • exclusive products • up price => up revenue • B. Elastic Demand - • Demand Changes Greatly With • a Small Change in Price. • Durables e.g.. furniture • down price => up revenue AssignmentPoint.com

  6. 3. Estimating costs • The costs involved with producing, distributing and selling a product may be viewed as FIXED and VARIABLE. FIXED COSTS do not vary in line with the quantity of the product produced or sold(e.g.. CEO’s car, rent of factory premises, security cost, etc.)VARIABLE COSTS vary directly with the level of productione.g.. raw materials, labour, power, fuel etc. AssignmentPoint.com

  7. 4. Analysing competitors’ costs, prices and offers 5. Selecting a price method Cost-plus (Mark-up) pricingAdding a standard mark-up to the cost of the product. Unit cost = VC + Fixed cost/unit sales Mark-up price = Unit cost/(1 – desired return on sales) AssignmentPoint.com

  8. Break-even analysis and Target profit pricing AssignmentPoint.com

  9. 6. Selecting the final price Psychological pricing Reference price AssignmentPoint.com

  10. Adapting the priceGeographical pricing Countertrade Barter Compensation deal Buyback arrangement Offset AssignmentPoint.com

  11. Product Line Pricing • Setting Price Steps Between Product Line Items • May be based on cost differences, consumer value or competitor prices • i.e. Toyota’s range of cars (Echo to Lexus) • A portfolio approach to pricing - seek to maximise profits of • entire firm rather than for each individual product. • Aim is to strengthen the positioning of the individual products AS A LINE • within the market, so as overall sales, revenues and profits are maximised. Product Mix Pricing Strategies Optional-feature Pricing Pricing Optional or Accessory Products Sold With The Main Product i.e. Car Options • Aim to maximize the profits from the total product mix AssignmentPoint.com

  12. Captive-Product Pricing Pricing Products That Must Be Used With The Main Product Supplies for main product may be relatively expensive i.e. Razor Blades, Cartridges, Software By-Product Pricing Pricing Low-Value By-Products To Get Rid of Them Sales proceeds may help cover cost of main product Product Mix Pricing Strategies AssignmentPoint.com

  13. Product-Bundle Pricing • Pricing Bundles Of Products Sold Together • The package price should be lower than the additive prices • of included products • i.e. Season Tickets, Computer Makers, Alarm systems • With monitoring included, BMW price including 3 • years service & roadside Emergency Assistance • Encourages ongoing relationship with customer • Inflates price without perhaps increasing value! • eg, price of MSWord vs. MSOffice suite • May be good strategy for moving low volume products Product Mix Pricing Strategies AssignmentPoint.com

  14. Product Mix Pricing Strategies Two-Part pricing: Fixed fee and a variable usage fee. Example: Amusement parks, Hotels etc. AssignmentPoint.com

  15. DP occurs when a company sells a product or service at two or more prices that do not reflect a proportional difference in costs Discriminatory Pricing Customer-segments Product Form E.g. student/senior discounts different versions eg. Packaging eg. country areas to reflect different demand levels eg. Big festivals E. g. Perfume manufacturer E. g. Coke in Restaurants Location Time Image Channel AssignmentPoint.com

  16. Responding to competitors’ price changes Maintain price Maintain price & add value Reduce price Increase price & improve quality Launch a low price fighter line AssignmentPoint.com

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