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DEVELOPING PRICING STRATEGIES AND PROGRAMS

MM KuiAteneo Graduate School of Business

Top 10 Concepts

Outline: Pricing…

1. Must be integral in marketing mix (why?)

2. Involves both buyers and sellers (how?)

3. Derived from company’s objectives (what?)

4. Changing (how?)5. Should consider competitors (why?)

Outline:Pricing…

6. Employs several methods (what?) 7. Isn’t just about “lowest price” (why?)8. Differentiation responds to differing

needs (how?)9. Can be boosted by advertising (how?)10. Must be increased carefully (how?)

Concept 1:

Pricing is an integral part of the marketing mix Only element that produces

revenue Communicates product/brand

placement, image, quality, value Major determinant of buyer choice

Concept 2:

Buyers are not just “price takers”

Understand consumer pricing psychology

Price-quality inferences Higher price = Higher quality Higher price = Exclusivity

Price endings “9” endings Process price in left-to-right manner

Concept 2:

Buyers are not just “price takers” Reference prices

Fair price Last price paid Upper- / Lower-bound

price Competitor price Expected future price Usual discounted price

Concept 3:

A clear objective is essential for pricing decisions Clearer objective = easier price setting 5 objectives:

Survival Maximum current profit Maximum market share (Chinese style) Maximum market skimming (technology) Product-quality leadership (cars)

Concept 4:

Pricing must always respond to the times Consider your customers

Will they buy at my current price? How will they respond to price

change? How can I use pricing to entice?

Concept 4:

Pricing must always respond to the times Consider your competitors

Why change price? Price change temporary or

permanent? What will happen if I don’t respond? Will other competitors respond? How will competitors respond to my

response?

Concept 4:

Pricing must always respond to the times

Consider the environment What is the current trend in pricing? Is this trend suitable for my industry? How to be visible on the internet? Can freemium concept apply to my

product?

Concept 5:

Base your price on your competitors’, and anticipate a response Add/deduct price from nearest

competitor’s price Change in price can provoke a

response Always research on competitor

customers’ loyalty

Concept 6:

Select the best pricing method for you

3 major considerations Costs = price floor Customer value perception = price

ceiling Competitor & substitute price =

orientation point

Concept 6:

Select the best pricing method for you

6 price-setting methods Mark-up Target-return Perceived-value Value pricing Going-rate Auctions

Concept 7:

Pricing is not always about “lowest price”

Most consumers are not too price sensitive provided: There are few substitutes They are resistant to change They think the higher price is justified

Pay more for features, warranty, quality, support

Concept 7:

Pricing is not always about “lowest price” Avoid these traps:

“Soft” list price “Low-quality” image Fragile market share Shallow-pockets Price wars

Concept 7:

Pricing is not always about “lowest price” Discounts are good for:

Early payments Volume purchases Off-season buying Promotions

Concept 8:

Price differentiation is a useful tool Offer unique bundle to meet needs

precisely 3 degrees:

1st – based on demand intensity 2nd – based on volume 3rd – based on buyer class

Concept 8:

Price differentiation is a useful tool Types of 3rd degree:

Customer segment (museums)

Product form (Evian) Image (Marriot/Holiday Inn) Channel (Coke) Location (concerts) Time (buffets)

Concept 9:

Advertising allows a product to boost its price Average quality + low advertising

= average price Average quality + high advertising

= higher price High quality + high advertising =

highest price

Concept 10:

Price increases must not alienate customers Factors resulting to price increase:

Cost inflation Over demand Under supply Additional features

Concept 10:

Price increases must not alienate customers Consumers prefer regular small

price increases Give advance notice Make low-visibility price increases

Eliminate discounts Increase minimum order Curtailing low-margin products

Concept 10:

Price increases must not alienate customers Alternative approaches:

Shrink amount of product Substitute less expensive materials Reduce/remove product

features/services Use less-expensive packaging Reduce sizes or models offered Create economy brands

Summary: Pricing…

1. Signals a brand’s position in the market

2. Is also dictated by the buyers3. Is easier with a clear objective4. Is changing5. Influences competitors

Outline:Pricing…

6. Employs several methods7. Should not be all about “lowest

price”8. Differentiation responds to differing

client needs 9. Can be boosted by advertising10. Must be increased without

offending customers

My Conclusion: Pricing should be the foremost concern, as it:

reflects a product’s position influences buyer choices initiates responses from

competitors, and Impacts bottom-line income