Transcript Document
MARKETING Pricing Strategies Prof. Bauer-Ramazani Overview Definition of price Factors that influence the pricing decision Pricing objectives Pricing strategies over the product life cycle Three major pricing strategies and their advantages and disadvantages Exercises applying different pricing strategies 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, dues Factors in Setting Price Pricing Objectives Determining Prices Meet Business Objectives Other Pricing Objectives Loss Containment Survival Customer Benefit Social & Ethical Considerations Price-Setting Tools Economic Supply/Demand Equilibrium Price: Supply = Demand Price per flash drive/memory stick Number of flash drives/memory sticks demanded 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 Recreational Vehicles 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 Breakeven Analysis Breakeven Point Formula Breakeven Quantity = Fixed Costs Price/unit –Variable cost/unit (Contribution Margin) Cost-based Pricing 1. Estimating the per-unit cost of production Capital (K): land, building, equipment = fixed cost (FC) Labor (L): workers’ wages = variable cost (VC) EX: $0.50 + $0.50 = $1.00 (production cost) 2. Adding a mark-up Desired profit per item: $0.50 3. Sales price = cost of production + mark-up $1.00 + $0.50 = $1.50 50% markup Mark-up Calculation How costs affect gasoline prices Price Strategies for New Products PRICE Penetration Price Strategy PRICE Skimming Price Strategy PRICE Skimming > Penetration Penetration Low price establish product in the market Elastic demand; Predatory pricing Skimming High price; unique product; appeal to early adopters; Prestige pricing Recovering high R&D costs Combination Move inventory; stimulate D; extend product life Pricing of iPhones Exercise Select the appropriate pricing strategy. Explain your choice. 1. Wal-Mart launches a new range of own-label soups. 2. Cunard launches two new cruise ships. 3. A cable TV provider moves into a new area and needs to achieve a market share. 4. Holiday Inns try to fill hotels during winter weekends. 5. Burger King introduces a new range of value meals. 6. Nokia launches a new videophone. Pricing Tactics Price Lining • Setting a limited number of prices for certain categories of products Psychological Pricing • Pricing to take advantage of the fact that consumers do not always respond rationally to stated prices Discounting • Price reductions offered as an incentive to purchase High tech Pricing: giving it away!