Transcript Document
MARKETING Pricing Strategies Prof. Bauer-Ramazani Overview Definition of price Prices in BU113 companies Factors that influence the pricing decision Pricing objectives Three major pricing strategies and their advantages and disadvantages Pricing strategies over the product life cycle Pricing tactics 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/wage, dues Prices -- BU113 Companies • What objectives did the managers have in mind when they set their prices? Factors in Setting Price Pricing Objectives Meet Business Objectives Other Pricing Objectives Status Quo Image Social & Ethical Considerations Price Strategies for New Products PRICE Penetration Pricing Low price establish product in the market PRICE Skimming Pricing PRICE Skimming Penetration High price/Prestige pricing appeal to early adopters; recover high R&D costs Lower price over time Move inventory, stimulate D, extend product life Marketing Strategy Over the Product Life Cycle INTRODUCTION GROWTH MATURITY DECLINE Marketing strategy emphasis Market development Increase market share Defend market share Maintain efficiency in exploiting product Pricing strategy High price/unique Lower price Price at or below Set price to competition remain profitable or product / cover over time production costs reduce to Promotion Strategy Place strategy Low price/gain market share liquidate Mount sales promotion for product awareness Appeal to mass market Emphasize brand differences, benefits & loyalty Reinforce loyal customers; reduce promotion costs Distribute through selective outlets Build intensive network of outlets Enlarge distribution network Be selective in distribution, trim unprofitable outlets Determining Prices PriceSetting Tools Economic—Supply/Demand Elasticity of Demand measure of the sensitivity of demand to changes in prices Price Inelastic Demand Electricity P2 P1 Price Q2 Q1 Quantity Elastic Demand Fast food P2 P1 Q2 not price sensitive - no real change in demand Q1 Quantity price sensitive - changes in demand Market-based Pricing Pricing Existing Products/Services - 3 options Pricing below market 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 Pricing Tactics Price Lining • Price points: Setting a limited number of prices for certain categories of products Psychological Pricing • Odd-even Discounting • Quantity discounts • Cash discounts (2/10 net 30) Web programs: free! Cost-based Pricing (Cost-Plus) 1. Cover costs Material Labor Capital resources Marketing variable costs fixed costs 2. Mark-up Targeted return for shareholders Costs + mark-up = Sales price $1.00 + $0.50 = $1.50 (50% markup) Mark-up Calculation – Exercise 1. Price per product 2. Less the cost per product (what you paid the supplier, e.g. total cost paid / # of items purchased) Dollar Mark Up % MARK UP Sales Price Breakeven Analysis TC = TR Breakeven Point Formula Fixed Costs BREAKEVEN QUANTITY Price/unit – Variable cost/unit (Contribution Margin) Review • 5 Factors that influence prices • Pricing objectives • Pricing strategies at different stages of the Product Life Cycle (advantages/disadvantages) • Methods of Determining Prices – Elasticity of demand – Mark-up – Breakeven Analysis