Transcript 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


Three examples
Sacrifices
• Total Cost in Use




Acquisition
Possession
Usage
Value-Based Strategies
Pricing Process
1.
2.
3.
4.
5.
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
Step 1:
Set Strategic Pricing Objectives

Three goals
• ___________________
• ___________________
• ___________________

Dow v. DuPont
Step 2:
Estimate Demand and Price Elasticity of Demand


What to Look At
Assessing Value
• Isolate important attributes and
perceptions
• Four strategies
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
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
Step 4:
Examine Competitors’ Prices and Strategies


Is price the only thing customers
look at?
Hypercompetitive Rivalries
• Characteristics
• First-movers

Advantages
• Followers

Advantages
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
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?
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
Competitive Bidding

Two forms
• Gain understanding of prices
• Reverse auctions


Closed bidding
Open bidding
• Online open bidding

Strategies
• How to gain profitability?