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Pricing

In the competitive landscape of modern business, pricing strategies transcend mere calculations of costs and margins. This comprehensive exploration delves into how effective pricing is an expression of value, influenced by various factors including product performance, brand equity, and market positioning. Discover the importance of differentiation, including physical, availability, service, and image differences. Learn about pricing approaches like cost-based, competition-based, and buyer-based strategies. Mastering these concepts is essential for companies aiming to succeed in tomorrow's market.

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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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