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Part Five: Pricing Strategy ( Chapter11-Charpter12)

Part Five: Pricing Strategy ( Chapter11-Charpter12). Price Defined (P.345). Price : The amount of money charged for a product or service,or the sum of the values that consumers exchange for the benefits of having or using the product or service.

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Part Five: Pricing Strategy ( Chapter11-Charpter12)

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  1. Part Five: Pricing Strategy ( Chapter11-Charpter12)

  2. Price Defined(P.345) • Price :The amount of money charged for a product or service,or the sum of the values that consumers exchange for the benefits of having or using the product or service. • Dynamic pricing: Charging different prices depending on individual customers and situations.

  3. Factors affecting price decisions(P.348) External factors Nature of the market and demand; Competitors; Other environment factors(economy, reseller, government Internal factors Marketing objectives; Marketing mix strategy; Costs; Organizational consideration Pricing decision

  4. Type of Cost : Fixed cost Variable cost Total cost

  5. Pricing in different types of markets(P.379) Monopolistic competition Pure competition Pricing Oligopolistic competition Pure monopoly

  6. Demand curve(P.354) • P1 P1 • Q2 Q1 Q2 Q1 • A. Inelastic demand B. Elastic demand P2 P2 price

  7. Price elasticity of demand (P.382) %Change in Quantity Demanded Price Elasticity = of demand %Change in price

  8. General pricing approaches(P.357) Product Costs Competitors’ prices and other Internal and external factors Consumer perceptions of value Price floor No profits below this price Price ceiling No demand above this price

  9. Cost -Based Pricing（成本导向定价） • Cost - plus pricing（成本加成定价）(P.357) e.g: Variable cost $10 Fixed cost $300,000 Expected unit sales 50,000

  10. Fixed Costs Unit cost = Variable Cost + Unit Sales 300000 = $10 + = $16 50000 Unit Cost $16 Markup Price = = =$20 (1-- Desired return on sales) 1--0.2

  11. Breakeven Volume Pricing (target profit pricing)（目标利润定价）(P.358) • $ • 1200 Total Revenue • 1000 Target Profit($20000) • 800 Total Cost • 600 • 400 • 200 Fixed Cost • 0 • 10000 20000 30000 40000 50000 Q

  12. Breakeven volume and profits at different prices

  13. Value- Based Pricing （认知价值定价） • Cost based pricing • Value-based pricing Product Cost Price value Customer Customer Value Price Cost Product

  14. Competition -Based Pricing（竞争导向定价） • BID PROFIT ASSUMED EXPECTED • PROFIT • $9,500 $ 100 81% $81 • 10000 600 36% 216 • 10500 1100 9% 99 • 11000 1600 1% 16 密封投标定价 随行就市定价 Sealed-bid pricing Going-rate pricing

  15. New-product Pricing Strategies (P.371) Market-Skimming Pricing Market-Penetration Pricing 1、High quality and image，enough buyer； 2、Cost is not high for smaller volume； 3、Competitors hardly enter the market。 1、Market is high price sensitive； 2、Cost is falling as sales volume increase； 3、Low price can keep out the competition。

  16. Product-Mix Pricing Strategies STRATEGY DESCRIPTION Product line pricing Setting price steps between product （系列定价） line items。 Optional-product pricing Pricing optional or accessory products （附件定价） sold with the main product。 Captive-product pricing Pricing products that must be used （诱饵定价） with the main product。 By-product pricing Pricing low-value by-products to get （副产品定价） rid of them。 Product-bundle pricing Pricing bundles of products sold （捆绑定价） together。

  17. Price-Adjustment Strategies STRATEGY DESCRIPTION Discount and allowance pricing Segmented pricing Psychological pricing Promotional pricing Value pricing Geographical pricing Reducing prices to reward customer responses such as paying early or promoting the product。 Adjust prices to allow for differences in customer，products，or locations。 Adjust price for psychological effect。 Temporarily reducing prices to increase short-run sales。 Adjust prices to offer the right combination at a fair price。 Adjust prices to account for location。

  18. Price Changes • Initiating Price Cuts; • Initiating Price Increases; • Buyer Reactions to Price Changes; • Competitor Reactions to Price Changes.

  19. Hold current price; Continue to monitor Competitor’s price Has competitor cut price? No Assessing and responding to competition’s price changes ( P.386) Yes Will low price negatively affect out market share & profit? No Reduce price Raise perceived quality Yes No Can/should effective action be taken? Improve quality & increase price Yes Launch low-price “fighting brand”

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