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1. Pricing Product Management
MK 7790
2. Pricing Strategies Pricing affects the whole P&L and overall profitability.
Pricing affects forecasting
Elasticity = change in volume/ change in price.
Pricing affects positioning (e.g. IZOD example - discount)
Objectives
Penetration
skimming
ROI
Stability
3. Pricing Basics Cost and profit requirements. (cost plus; target ROI, learning curve)
Benefits delivered (attributes x utility, options pricing).
Competitive and Channel threats (going rate, price value gap; margin enhancement).
Differential pricing (Optimization, segmentation, price sensitivity, secondary markets).
Periodic/Seasonal discounting.
Product line pricing:
relative price points and promotion
trade up
4. Pricing Basics Price bands
Price bands (Generic vs Haagen Dazs ice cream)
Why - different importance placed on price
Price not always easily visible
fewer competitors
Perceived Value
Perceived value > Price> Variable cost
Leaving money on table
Price>PV>VC
poor value
5. Pricing Basics Value
Value in use - price to limit of incremental benefit
Simulate buying experience
Conjoint and assessing brand equity
Price thresholds
Reservation price - Highest
Lower bound
Estimate acceptable price
Reference price
standard comparison
Experience curve and cost
6. Pricing Basics Bundling
Line Pricing
Complementary pricing -razors and blades
Everyday low price
Differential pricing
Secondary markets
Discounting
7. What Affects Price Elasticity Unique Value - more unique, less price sensitive (Harvard MBA)
Substitute Awareness - if less aware, less price sensitive (Non-commodity consulting)
Difficult Comparison - If hard, less price sensitive (brain surgery)
Total Expenditure - if price low relative to income, less price sensitive (rich people)
End Benefit - If object price is low portion of total cost, less price sensitive (i.e.., mouse)
Shared Cost - If cost is shared, less price sensitive (government)
Sunk Investment - If already purchased related product, less price sensitive - (Razor blades; virus protector)
Price Quality - If product has more perceived quality, prestige, or exclusiveness, less price sensitive
Inventory - If cannot store the product, less price sensitive.