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Pricing Strategy for Business Markets

Pricing Strategy for Business Markets. Chapter 15. The Meaning Value. The Importance of Price Customer Value “Business customers’ overall assessment of the utility of a relationship with a supplier based on benefits received and sacrifices made.” Benefits Core benefits Add-on Benefits

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Pricing Strategy for Business Markets

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  1. Pricing Strategy for Business Markets Chapter 15

  2. The Meaning Value • The Importance of Price • Customer Value • “Business customers’ overall assessment of the utility of a relationship with a supplier based on benefits received and sacrifices made.” • Benefits • Core benefits • Add-on Benefits • Three examples • Sacrifices • Total Cost in Use • Acquisition • Possession • Usage • Value-Based Strategies

  3. Pricing Process • Set Strategic Pricing Objectives • Estimate Demand and Price Elasticity of Demand • Determine Costs and Relationship to Volume • Examine Competitors’ Prices and Strategies • Set the Price Level

  4. Step 1: Set Strategic Pricing Objectives • Three goals • ___________________ • ___________________ • ___________________ • Dow v. DuPont

  5. Step 2:Estimate Demand and Price Elasticity of Demand • What to Look At • Assessing Value • Isolate important attributes and perceptions • Four strategies

  6. Step 2:Estimate Demand and Price Elasticity of Demand • Elasticity of Demand • What does it measure? • Satisfied customers= Less price sensitivity • Customized solution means higher price • What increases price sensitivity? • Easy to shop around • Easy price comparisons • Buyers can switch without extra costs • Inelastic when price comprises large part of total cost • Focus on end-use • Value-based segmentation

  7. Step 3:Determine Costs and Relationship to Volume • Target costing • What is it? • Classifying costs • Three types • Direct traceable or attributable costs • Raw materials • Indirect traceable costs • General plant overhead • General costs • Administrative costs of sales districts

  8. Step 4:Examine Competitors’ Prices and Strategies • Is price the only thing customers look at? • Hypercompetitive Rivalries • Characteristics • First-movers • Advantages • Followers • Advantages

  9. Pricing Products in the Life Cycle • Analyze from __________ perspective • Skimming • What is it? • When to use it? • Time segmentation • Penetration • What is it? • When to use it? • Product Line Consideration • Legal Considerations • Robinson-Patman Act

  10. Responding to Price Attacks • Evaluating the Threat • Is there a response that would cost you less than the preventable sales loss? • 3 ways to decrease threat • If you respond, is the competitor willing and able to lower price again to restore difference? • Why are they focusing on price?

  11. Responding to Price Attacks • Will multiple responses that maybe required to match a competitor’s prices still cost less than the available sales loss? • Allow them to win? • Create barriers • Is your position in other markets at risk if the competitor gains marketshare? Does the value of all the markets at risk justify the cost of the strategy response? • Look at costs and benefits • Two general rules

  12. Competitive Bidding • Two forms • Gain understanding of prices • Reverse auctions • Closed bidding • Open bidding • Online open bidding • Strategies • How to gain profitability?

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