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Setting the Right Price: Concepts and Practice

Setting the Right Price: Concepts and Practice . Mitchell Young. Yummy Bar 12.50 kc. Choco -Bar 9.90 kc. What does Price do?. Names Terms of Exchange Signifies Quality Shapes the Value of the Product How? Motivating consumer to rethink and better understand what they are being offered.

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Setting the Right Price: Concepts and Practice

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  1. Setting the Right Price:Concepts and Practice Mitchell Young

  2. Yummy Bar 12.50 kc Choco-Bar 9.90 kc

  3. What does Price do? • Names Terms of Exchange • Signifies Quality • Shapes the Value of the Product • How? • Motivating consumer to rethink and better understand what they are being offered

  4. What you need to know before determining price • Costs • Competitors • Customers and Value • Corporate Strategy

  5. The 3 C’s and Pricing Models Models: • Markup pricing • Going-rate pricing • Perceived-value pricing • Value pricing • Premium pricing • Auction-type pricing

  6. Costs (costs plus or markup) = ProductCost

  7. Analyze competitors’ costs, prices and offers • Consider the nearest competitor’s price • Evaluate worth to customer for differentiated features • Judge whether the customer will be willing to pay more • Anticipate response from competition – what would you do in competition’s place?

  8. Where do customers perceive value? • Features • Buyer’s image of product performance • Ability to deliver on time • Warranty • Customer support • Supplier reputation • Trustworthiness and Reliability • Esteem • End user of the product

  9. Strategic Decisions: the pricing objective • Survival • Maximum current profit • Maximum market share • Maximum market skimming • Product-quality leadership

  10. Porter’s Generic Strategies

  11. Price-adaptation strategies Geographical pricing Discounts/allowances Promotional pricing Differentiated pricing Bundle pricing

  12. Communicating with Customers by Using Price • Commodification = Products become “commodities” • Skepticism, routinized behavior, minimal expectations, prefer swift and effortless transactions • All product dimensions are equally palatable, differences are not worth investigating • Not about products, but about customers (vs. actual commodities) • Objective is to reengage buyer who is past caring • Tires, Explosives, Car Insurance

  13. Using Price – Change Parameters • Adjust price structure to clarify advantages • Move away from “units sold” model • Examples • Goodyear, price on “miles/km” expectation, rather than engineering • Orica, price on fragmentation of rock rather than explosive • Norwich Union, insurance based on miles driven, rather than risk

  14. Using Price - Overpricing • Thought-provoking effect of moderate overpricing (50% to 80%) • Consumer: “Why is this so much more expensive?” • Revives considerations and recall of other features • Apple computers, Starbucks, etc.

  15. Using Price - Partitioning • Use partitioning to highlight overlooked benefits • Showing broken down pricing can cause consumers to revise behavior • Unbundling • Cable television (channels, set top box, internet) • Low cost airlines (flight, luggage, food)

  16. Using Price – Single Price Point • Customer focuses on choice, rather than price • Swatch -- which is right for me? • iTunes

  17. Using Price – Free • Power of Free • Free $10 gift certificate, or seven dollars for a $20 gift certificate • Amazon France • Shipping for 1 Franc (vs. free)

  18. Presenting the price Anchoring • Use a comparison • TiVo (VCR vs. Computer) • $200 vs. $1000 • Apple iPhone • $600 to $400 • Anchor high value PriceCues • ‘Left to right’ pricing ($299 versus $300) • Odd number discount perceptions vs. Even number value perceptions • ‘Sale’ written next to price • Limited availability

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