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Chapter 7

Chapter 7. Pricing strategies.

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Chapter 7

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  1. Chapter 7 Pricing strategies

  2. ‘Value’ may be one of the most overused and misused terms in marketing and pricing today. ‘Value pricing’ is too often misused as a synonym for low price or bundled price. The real essence of value revolves around the tradeoff between the benefits a customer receives from a product and the price he or she pays for it. • R. Leszinki & M.V. Marn, ‘Setting value, not price’,The McKinsey Quarterly, 1997 No. 1, pp.99–100.

  3. Objectives At the end of this chapter, you will be able to develop realistic pricing strategies taking into account: • external considerations • internal factors • legal considerations.

  4. The strategic marketing planning process Situation analysis Problems & opportunities Marketing strategies – pricing strategies Determination of pricing strategies, taking into account the external environment, internal factors and legal considerations. Marketing objectives Marketing strategies Budget Implementation Evaluation & control

  5. A holistic process • Marketing strategies • Higher-level strategies • Business position • Product-market strategies • Marketing mix strategies • Target markets • Consumer positioning • Product strategies • Pricing strategies • Distribution strategies • IMC strategies + additional 3Ps for service providers • People, process management and physical asset strategies • Marketing objectives • Corporate objectives • Financial objectives • Marketing objectives • Performance • objectives

  6. Developing pricing strategies (1) • Determining an effective pricing strategy involves three sets of considerations: • the external environment • internal factors • legal considerations.

  7. Developing pricing strategies (2) External environment • Market factors • Customer demand • price elasticity • price threshold • Competitive influences • price/quality position • price lining Internal factors Legal considerations

  8. Developing pricing strategies (3) • Business positioning • Strategic position • Profit/ROI objectives • Internal capabilities (cost leadership) • For new products • Skimming v. penetration • For all products • Ensure pricing strategy is consistent with all other marketing mix strategies. External environment Internal factors Legal considerations

  9. Developing pricing strategies (4) External environment Compliance with provisions in TPA and PSA particularly TPA s.45 Anti-competitive agreements, s.46 Misuse of market power and s.48 Resale price maintenance. Internal factors Legal considerations

  10. Decision-making aids As an aid for analysis and decision making, draw on tools such as: • the PLC and innovator theory • product portfolio models • models of competitive advantage • price elasticity and demand curve(Figure 7.1) • the price/quality positioning map (Figure 5.2).

  11. $3000 $2800 $2600 $2400 $2200 $2000 500 2000 4000 6000 Units Demand curve: Example Demand for a hypothetical notebook computer at various price points

  12. Price High Low XX High XX Product quality XX XX XX Low XXX A price/quality positioning map

  13. Responding to a competitive pricing challenge 1 Determine the motives for the price attacker and the capabilities of the competing organisation. 2 Attempt to achieve superior performance (cost leadership or differentiation) based on customer needs. 3 Show the competitor that the battle will not be easy.

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