Transcript Pricing Strategy for Business Markets

Pricing Strategy for
Business Markets
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Customer Value in Business Markets
Customer Value
Benefits
Core Benefits
Add-on Benefits
Sacrifices
Acquisition Costs
Processing Costs
Usage Costs
Source: Adapted with modifications from Ajay Menon, Christian Homburg and Nikolas Beutin, “Understanding Customer Value in Business-to-Business
Relationships,” Journal of Business-to-Business Marketing 12, No. 2 (2005), pp. 1-33.
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• Broad perspective needed in examining the costs that any particular
alternative may present for buyer.
• Rather than deciding based on price alone, organizational buyers
emphasize the total cost in use of particular product or service.
Customers’ Cost-in-Use Components
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• No easy formula for pricing
industrial product or service
Key Components of the PriceSetting Decision Process
Set Strategic Pricing Objectives
• Decision is multidimensional.
Estimate Demand and the Price Elasticity of Demand
• Each interactive variable
assumes significance.
Determine Costs and their Relationship to Volume
Examine Competitors’ Prices and Strategies
Set the Price Level
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Price Objectives
•
Pricing decision must be based on marketing
and overall corporate objectives.
•
Marketer starts with principal objectives and
adds collateral pricing goals:
– Achieving target return on investment.
– Achieving market-share goal.
– Meeting competition.
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Equation highlights how customers compare relative perceived values of
two competing offerings.
Premium price differential, or perceived relative value, can be broken down
into components based on each important attribute:
– Value of the attribute to the buyer, and
– Perception of how competing offerings perform on that attribute
Relative Perceived Value of Two Product Offerings
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Price Elasticity of Demand
• Percentage change in quantity demanded given a
particular percentage change in price.
• Factors that influence price elasticity:
– Ease with which customers can compare
alternatives.
– Importance of product in cost structure.
– Value that product represents to customer.
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Cost Classification System Goals
•
Proper classification of cost data into fixed and
variable components.
•
Proper attribution of costs to activity creating
them.
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Cost Concept Analysis
•
Direct traceable or attributable costs
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Indirect traceable costs
•
General costs (Overhead)
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Selected
Cost
Comparison
Issues:
Followers
Versus the
Pioneer
Under certain conditions, followers entering a market may confront lower initial
costs than did the pioneer. By failing to recognize potential cost advantages of
late entrants, the business marketer can dramatically overstate costs
differences between earlier and later entrants.
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Pricing New Products
Skimming
– Appropriate for distinctly new products; provides the firm with
opportunity to profitably reach market segments not sensitive
to high initial price.
– Enables marketer to capture early profits.
– Enables innovator to recover high developmental costs more
quickly
Penetration appropriate when:
– High price elasticity of demand,
– Strong threat of imminent competition,
– Opportunity for substantial production cost reduction as
volume expands
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Competitive Strategy Rules
• Never participate in competitive engagement
you cannot win.
• Always participate in competitive engagement
from advantageous position.
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