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Pricing

Pricing. The Puzzle of the Next Century. Pricing Puzzle. “ A price is not merely a function of costs and margins… ”. Costs + Margins = PRICE. Pricing Puzzle. “ A price is not merely a function of costs and margins… ”. Costs + Margins = PRICE. “…it is an expression of VALUE ”.

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Pricing

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  1. Pricing The Puzzle of the Next Century

  2. Pricing Puzzle “ A price is not merely a function of costs and margins… ” Costs + Margins = PRICE

  3. Pricing Puzzle “ A price is not merely a function of costs and margins… ” Costs + Margins = PRICE “…it is an expression of VALUE ”

  4. Production costs Indirect costs Advertising costs Distribution costs Manufacturer’s margin Distributor’s margin Seller’s margin Product performance Usefulness & Quality Image / Aspirations Brand Equity Availability Distribution Strategy Service Before/During & After sales Pricing Puzzle Minimize OptimizeMaximize Costs + Margins = PRICE VALUE

  5. 4 P’s PRODUCT PRICE PLACE PROMOTION 4 C’s CUSTOMER VALUE COST CONVENIENCE COMMUNICATION Pricing Puzzle

  6. 4 P’s PRODUCT PRICE PLACE PROMOTION 4 C’s CUSTOMER VALUE COST CONVENIENCE COMMUNICATION Pricing Puzzle

  7. A Secret Pie • Impact of a 1 % price increase on profits • Coca-Cola 6,4 % • Nestlé 17,5 % • Ford 26,0 % • Philips 28,7 %

  8. 4 P’s PRODUCT PRICE PLACE PROMOTION 4 C’s CUSTOMER VALUE COST CONVENIENCE COMMUNICATION Pricing Puzzle Seller’s Dilemma

  9. 4 P’s PRODUCT PRICE PLACE PROMOTION 4 C’s CUSTOMER VALUE COST CONVENIENCE COMMUNICATION Pricing Puzzle “ Tomorrow’s winner companies will be those who offer distinct products at comparatively low market prices ”

  10. Key = Differentiation The key to drive value is to offer relevant and distinctive product differentiation • Physical Differences • Features, performance, durability, conformance, design, etc… • Availability Differences • Distribution channels ; Stores, mail-order, internet, etc… • Service Differences • Delivery, installation, training, consulting, maintenance, etc… • Price Differences • Price positioning (Very high / High / Medium / Low / Very Low) • Image Differences • Symbols, atmosphere, events, media, etc…

  11. Key = Differentiation Differentiation : Examples • Physical Differences • Levi’s Engineered Jeans (Ergonomic construction, durability, style) • Availability Differences • Dell Computer’s customized production, Volkswagen “e.lupo” • Service Differences • Acıbadem Hospital – Mother Care Division, Nissan “5-year Warranty” • Image Differences • Audi vs Mercedes, DuPont (Innovation Leader)

  12. Key = Differentiation Differentiating commodities… • Perdue Chicken (USA) • Guaranteed tenderness (30 % market-share, 10 % premium pricing) • Flora Drinking Water (Turkey–Sabancı Holding) • Service, packaging, attributes, operation • Starbuck’s Coffee (USA) • Atmosphere, standard service Everything can be differentiated !...

  13. INTERNAL FACTORS Marketing Objectives Positioning Target Group Marketing Mix Strategy 4 P’s Costs Fixed & Variable Management Approach Responsibility Perspective EXTERNAL FACTORS Market Pure Competition Monopolistic Competition Oligopolistic Competition Pure Monopoly Demand Elastic / Inelastic Competition Competitors’ offers Competitiors’ reactions Economy Buying power Government Influence Laws & Regulations Pricing Decisions

  14. Pricing Approaches • Cost-Based Pricing • Cost-Plus Pricing • Product Cost + Standard Mark-Up = Price • BE Analysis & Target Profit Pricing • A necessary survival tool • Buyer-Based Pricing • Perceived Value • Consider buyers’ perceptions of value NOT the cost • Competition-Based Pricing • Basing prices on competitors’ prices • Premium Pricing • Going-Rate Pricing • Discount Pricing

  15. Pricing Strategies • PRICING a SINGLE NEW PRODUCT • Market-Skimming • Highest possible price to skim small but profitable segments • Penetration Pricing • Lowest possible price to penetrate the market quickly

  16. Pricing Strategies • PRODUCT-MIX PRICING • Product-Line Pricing • Establishing product lines at different price points • Volkswagen (Polo, Bora, Golf, Passat) • Optional-Product Pricing • Offering to sell optional/accessory products along with the main product • BMW & Mercedes • Captive-Product Pricing • Offering products, which must be used with the main product • Gillette razor blades • By-Product Pricing • Valued by-products positively affect pricing • Petroleum by-products • Product-Bundle Pricing • Several products combined and offered at a reduced price • Season tickets, New-year packages of hotels

  17. Price Adjustments • Adjust basic prices to account for various customer differences and changing situations • Discounts & Allowances • To attract/reward certain customer respones • Discriminatory Pricing • To allow for differences in customers, products & locations • Promotional Pricing • Varying price reductions offered depending on shopping period, item purchased, etc...

  18. Price Adjustment Strategies • DISCOUNTS & ALLOWANCES • Cash Discounts • Attract early payments • A 15% reduction applied to those customers who buy on cash • Quantity Discounts • Price reduction to buyers who buy large quantities • Functional Discounts • Differentiating prices among trade channel members • Different mark-ups for OLSs and corners • Seasonal Discounts • Price reduction to buyers who buy out-of-season • Allowances • Trade-in Allowances • Bring the old, take away the new... • Promotional Allowances • Discounts provided in return for participating in special programs

  19. Price Adjustment Strategies • DISCRIMINATORY PRICING • Customer-segment Pricing • Different customers pay different prices • Disneyland Adult vs Child pricing • Product-form Pricing • Different versions of the product are priced differently, regardless of the cost • An additional feature with a slight cost might justify a fat price premium • Location Pricing • Different locations are priced differently, regardless of the cost • Business Class seats • Time Pricing • Prices differ from month to month, day to day, even hour to hour • Prime-time/Off-prime-time pricing of advertising time

  20. Price Adjustment Strategies • PROMOTIONAL PRICING • Loss Leaders • Attract consumers in store, sell other items as well • Hyper-Markets (Carrefour, Gima, Praktiker, Migros, etc...) • Special-event Pricing • Offering discounts at times of special events • Valentine’s Day, New year, Şişli Municipality’s discount campaign • Cash Rebates • Discounts offered to consumers for purchases made in a limited period of time • Dockers campaign (20 % off) • Simple Cash Discounts • Over-the-counter to support revenues OR to defend against competition

  21. Psychology of Price • Consumer’s Mind-set (Black-Box) • BE CAREFUL !!! • Price vs Quality Image • CK perfume • Rolex watch • Pharmaceutical items • Perceptions • 30.000.000 TL vs 29.950.000 TL

  22. One Final Word “ A product is not a product unless it sells. Otherwise, it’s just a museum piece…” Ted Levitt

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