Transcript 8. Pricing Policies & Strategies

8. Pricing Policies &
Strategies
MKT8
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Price
Market variable that can be changed most quickly,
usually in response to competitor pricing
Seen as a financial expression of the value of the
product
Concept of value: Perceived value = perceived benefits
– perceived costs
Customer’s motivation to purchase product, first from
need/want (“I need/want food”); second comes from
perception of value (“I really fancy a McDonalds”)
Perception of value varies with customers, and can be
increased by either increasing the perceived benefits or
reducing the perceived costs
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List Price – what the customer pays
Includes:
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Physical good/service
Assurance of quality
Repair facilities
Packaging
Credit
Warranty
Delivery
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Pricing Objectives
Companies concerned about pricing objectives
(one of the 4 Ps) as it directly affects
sales/earnings and competitiveness
Pricing objectives should fit company’s overall
marketing strategy
Types of pricing objectives:
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Profit-oriented: using target return objective
Sales-oriented: to get specified share of the market
Status quo-oriented: maintain stable prices/competitor
activity (especially if satisfied with present situation)
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Influences on Pricing Policy
Costs: need to recover most of the time
Competitors: Need to accept market price in
conditions nearing perfect competition
Customers: what the customers are willing to
pay; need to match desired sales (market share)
with price-demand curve realities
Business Objectives – maximise profits, make
target return, achieve sales target, get/maintain
market share, match competition, etc
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Pricing Strategies
Full Cost Plus Pricing: (see p 530)
Return on Investment: (see p 534)
Expansionist Pricing:
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Exaggerated form of penetration pricing
Setting low prices to establish mass markets, possibly at the
expense of competitors
Useful when entering new/international markets
Variation: a lower cost version offered at a very low price to gain
recognition/acceptance (only until this is achieved)
When offered in overseas market at prices lower than production
cost – “dumping”
Penetration Pricing – to set lower prices so as to achieve
dominant market share
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Pricing Strategies (contd)
Skimming:
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charging a high price for a relatively short
period – skim off customers willing to pay
Price lowered when demand from “early
adopters” falls
Variable/Marginal Cost Pricing (see p 546)
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Other Pricing Strategies
Prestige Pricing – to evoke perceptions of
quality/prestige
Pre-emptive pricing – discourage/deter
new potential entrants to the industry
Extinction pricing – used selectively to
limited geographical markets/certain
product lines as a means to strategy (i.e.,
attract customers to its other products
which are more profitable)
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Transfer pricing
Where the parties are somehow
connected – same parent company
(usually an issue in cross-border
transactions)
Using “arms length” principle
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