STRATEGIC PRICING

Presented By:Manthan GajjarPresented To:Rajni Srinivasan

CONCEPT

PREDATORY PRICING• Pricing policy of reducing prices in the market

where the goods are produced is called "predatory pricing"

• Drive weaker competitors out of national market• Trying to monopolize• Eg:– Japanese at home– Matsushita in US

Contd..• Basically done for market peneteration and as a competitive

weapon• Consumers may benefit in the short run from lower prices,

but, in the longer term, weakened competition will lead to higher prices, reduced quality and less choice

• There are no case laws in India on this matter• A decision to engage in below-cost pricing is very costly• Unclear how long the prices have to be set below cost in

order to drive out competitors• Recoup losses

FEATURES

• Entry Barriers• Excess Capacity• Deep Pocket• Recoupment

MULTIPOINT PRICING

• Pricing strategy in one market may elicit a competitive rivals pricing strategy in another market

• Impact on competitor response in another market

• Eg:– Fuji Photo and Kodak– Kimberly-Clark Corp and Procter & Gamble

Contd..• In US Fuji cutting prices leads to 28% increase

shipments• 11% drop in Kodak’s Shipments• Kodak responded in Japan(fuji’s largest market)• Fuji responded back by pulling back its aggressive

stance in US• Kimberly-Clark Corp vs Procter & Gamble war

resulted in price fell of disposable diapers from $1 to 33 cents($1 = 100 cents)

• So, central monitoring of pricing decisions around the world is important

EXPERIENCE CURVE PRICING• More often a task is performed, the lower will be the

cost of performing it

• Firm will price low worldwide in attempting to build global sales volume as rapidly as possible thus moving production down the experience curve

Contd..

• The Experience Curve is a major enabler for a cost leadership strategy

• Firm gaining market share over its competitors, can develop a cost advantage

• All other firms equally pursue the strategy, then none will increase market share and will suffer losses from over-capacity and low prices

• Higher the cost of gaining a given market share and the lower the return on investment

• New technologies may create a new experience curve to take advantage of the latest technologies that offer a cost advantage over the older plants of the leading firm

REGULATORY INFLUENCES ON PRICES• The use of either price discrimination or strategic pricing

may be limited by national or international regulations

• Anti-Dumping Regulations – Dumping is whenever a firm sells a product for a price

that is less than the cost of producing it– Sets a floor under export prices & limits a firm’s ability to

pursue strategic pricing

• Competition Policy– Nations have regulations to promote competition &

restrict monopoly practices– Regulations can be used to limit the prices a firm can

charge in a given country (Hoffman-LaRoche)

CONFIGURING MARKETING MIX

The marketing mix involves all of the following elements excepta) Product attributesb) Communication strategyc) Distribution strategyd) Production strategy

CONTD..• Standardization versus customization

• Most firms standardize some things and customize others

• Decisions about what to standardize and what to customize should be made after exploring the costs and benefits of each option

• Eg: McDonald and American Express

CASTROL CASE• Lubricant division in Britain• Heavy spending on TV and automobile magazines in US and

Europe• In Vietnam,target people who wants to take care new

motorcycles for brand loyalty• Use of billiboards,car stickers, and some 4000 signs on the

roadside• And slogan “best quality lubricants”• Global advertising campaign featuring David Beckham• Premium pricing strategy to build a global brand imagee of

high quality and gaining share• Single distributor in each region,one tp deal with state

owned customers and second to deal with private customers

NEW PRODUCT DEVELOPMENT• Competition is as much about technological

innovation as anything else – firm must stay on leading edge of technology(Apple)

• Technological innovation is both creative & destructive (computer/typewriter)

• Build close links between R&D, marketing & production

• Eg: Apple,Sony,Pfizer,Intel,Cisco

SOURCES• http://www.thehindubusinessline.com/2004/10/20/stories/

2004102000091100.htm• http://www.legalserviceindia.com/article/l267-Predatory-Pricing.html• http://www.luthra.com/pdf/Predatory-Pricing-under-CA.pdf• http://www.mhhe.com/business/management/hill/student/olc/

gl_m.html• http://www.valuebasedmanagement.net/

methods_experience_curve_effects.html• http://www.netmba.com/strategy/experience-curve/