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Chapter 14 Pricing Strategies and Tactics

Chapter 14 Pricing Strategies and Tactics. Price Dynamics. Pricing is the only revenue generating element of the marketing mix. Pricing is a means of attracting and communicating an offer to a potential buyer. Pricing is a competitive tool.

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Chapter 14 Pricing Strategies and Tactics

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  1. Chapter 14 Pricing Strategies and Tactics

  2. Price Dynamics • Pricing is the only revenue generating element of the marketing mix. • Pricing is a means of attracting and communicating an offer to a potential buyer. • Pricing is a competitive tool. • Pricing can be used to position the product or service in the marketplace.

  3. Different Pricing Strategy • Skimming • Is to achieve the highest possible contribution in a short initial time period, then gradually lowering the price as the market. • Market Pricing • Following competitive pricing in the target market; adjusting production and marketing mix to competitive conditions. • Penetration Pricing • Offering low pricing to generate volume sales which hopefully will compensate for low margins.

  4. Market Skimming • Charging a premium price • May occur at the introduction stage of product life cycle • Meet the demand of innovators and early adopters who are willing to pay higher. • Used consistently in consumer electronic industry

  5. Penetration Pricing • Charging a low price in order to penetrate market quickly • Appropriate to saturate market prior to imitation by competitors • Packaged food product makers, with products that do not merit patents, may use this strategy. 1979 Sony Walkman

  6. ASSESSMENT OF PRICING ENVIRONMENTS EXTERNAL • Market-related factors • Nature of demand/target audience characteristics • Government regulations (e.g., duties) • Exchange rate stability • Industry-related factors • Competition intensity • Nature of competition INTERNAL • Marketing Mix • Product (e.g., old/new; standardized/differentiated • Distribution system (e.g., length) • Promotion needs (e.g., sales efforts) • Company characteristics • Extent of internationalization • Countries exported to • Management attitudes • Importance of exports • Overall price position of firm Pricing Policy Selection Pricing Strategy Determination Setting of Specific Price

  7. The Setting of Export Prices Customer Purchase Factors • ability to pay • price-quality relationship • reaction to marketing mix • market support Pricing Policies Factors • profit maximization • market share • survival • return on investment • competitive policies • copy competitive pricing • follow competitive pricing • price to discourage competitive entry

  8. Export Pricing Strategy • Cost-oriented pricing • Standard worldwide price- regardless of buyer’s location in the market(s) • Market-differentiated pricing • based on the dynamics of the marketplace • changes in competition, exchange rates, or other environmental changes etc.

  9. Export-Related Costs • Export-related costs • Cost of modifying a product for a foreign market • Operational costs of exporting • Cost incurred in entering the foreign market • Price escalation for exports results from • Clear-cut and hidden costs

  10. Methods for combating price escalation • Reorganize the channel of distribution • Product adaptation • Change tariff or tax classifications • Overseas assembly or production

  11. Negotiating Terms of Payment • Considerations • The amount of payment and the need for protection. • Terms offered by competitors. • Practices in the industry. • Capacity for financing international transactions. • Relative strength of the parties involved.

  12. Terms of Payment • Cash in Advance • Not widely used except for first time transactions • Letter of Credit • Promise to pay • Irrevocable, confirmed, non-revolving • Drafts • Similar to personal check • Must obtain shipping documents prior to delivery • Documentary collection • Bank acts as collection agent • Draft may be sold at discounted rate for immediate cash

  13. Managing Foreign Exchange Risk • Forward rate exchange market • “the exchange of currencies on a future date at an agreed upon exchange rate” • Spot rate transaction • “the exchange of currencies for immediate delivery”

  14. Dumping • Ranges of dumping • Predatory dumping • is intentional selling at a loss to increase market share • Unintentional dumping • occurs when market factors cause the import’s selling price to fall below prices in the exporter’s home market • Remedies for dumping • Antidumping duty • are levied on imported goods sold at less than fair market value • Countervailing duties • are imposed on imports which are subsidized in the exporter’s home country

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