Chapt 10 - Pricing

8/13/2019 Chapt 10 - Pricing

1/38

Pricing

1


2/38

I. The importance of price

The role of pricing.

Costs and profit.

Elements of cost.

Benefits of a costing system formarketers.

Price setting.2


3/38

The role of pricing.

Price can be defined as a measure of the

value exchanged by the buyer for the valueoffered by the seller.

Two broad categories of objectives may bespecified for pricing decisions: Maximizing profits.

Maintaining or increasing market share.

3


4/38

Costs and profit.

Cost is the amount of resources which is

allocated to preparing a product for offer to amarket.

Profit is the excess over costs in revenue. Inother words, profit is the outcome of deliveringsatisfactions to customers.

Ex: Profits are what enable a company to go on

trading, developing new products, paying dividends andpension funds.

4


5/38

Elements of cost.

Costs of products (or services):

The cost of materials.

The cost of wages and salaries.

The cost of other ex enses.

Material, labor costs and other expenses can beclassified as direct costs or as indirect costs.

5


6/38

Elements of cost (cont.)

Functional costs:

Production or manufacturing costs.

Administration costs.

Fixed costs and variable costs.

Controllable and uncontrollable costs.

6


7/38

Benefits of a costing system for

marketers

The identification of profitable and unprofitable

products, services, centers and so on. The identification of wages and inefficiency.

A i n in in ri .

The provision of accurate stock valuations.

The analysis of changes in costs, volume andhence profit.

Assistance in planning, control and decisionmaking.

Evaluation of the effectiveness of decisions. 7


8/38

Price setting in theory.

Economic theory can determine the price

structure under two market conditions:Perfect competition.

Mono ol .

Price elasticity

Price is greater than 1 (elastic).

Price is less than 1 (inelastic).

8


9/38

II. Pricing Policy

&Marketin Mix

What is a pricing policy?

Pricing issuesPricing as a strategic tool

9


10/38

In marketing mix, Price is the second component,behind Product and before Place.

The 7Ps of the marketing mix:

10


11/38

Definition:

Price is the unit ofrevenue combiningcosts and profit at

exchange takes placein a transaction.When multiplied by

volume it equals salesturnover.

11


12/38

For example:

The airline, railway, taxi, and bus

companies charge you a fare.

The local utilities call their price a rate.

e oca an c arges you nterest or t emoney you borrow.

So on.

12


13/38

2.1 What is a pricing policy?

Policy

Some principles are presented formally in writtenprocedures

Some are informal and unpublished

13


14/38

Pricing policy is the outcome ofmanagement decisions about pricewhich derive from internal

opera ona cons era ons a oucosts and external, customer-focused considerations about value

14


15/38


16/38

2.2 Pricing issues (contd)

=> The firm must decide a suitable price to

satisfy both consumers and suppliers

16


17/38

2.3 Pricing as a strategic tool

Price is also a signal of quality to the

product competes with alternatives in themarket.

17


18/38

III. PRICEIII. PRICEIII. PRICEIII. PRICE

EXPECTATIONSEXPECTATIONSEXPECTATIONSEXPECTATIONS

WHERE ISPRICE HIGH

OR LOW ?

18


19/38

Price positioning

New Samsung

S8003 Jet

Second-hand Samsung

S8003 Jet

19


20/38

The price of information

20


21/38

IV. Pricing strategy

Pricing strategy and the marketing mix

Pricing and the competitive edge

21


22/38

4.1. Price and promotion Information is embedded in the marketing mix under

marketing communications or promotion

Strategy: is the way in which organization meet theirmedium to long-term objectives by using their resources

in certain ways.

Marketing strategy: is the way which organizations meettheir marketing objectives by manipulating (fine-tuning)

the interactions of the components of the marketing mixto achieve optimum customer response.

22


23/38

Information / price model

Rapid Slow

High Low

skimming

skimming

Rapid penetration Slow

penetration

High

Low

Price

23


24/38

The high price/ high promotion category

produces a rapid skimming strategy withhigh-powered promotional campaigns.

Market penetration is enhanced by thecombination of low price and high levels of

promotion.

24


25/38

4.2. Pricing strategy and the

marketing mix The components of the marketing mix never

operate alone The mix components are those of the product mix(4Ps) or the services mix (the 7Ps).

Some segments may be very price sensitive, thus the

price is the predominant component.

The outlet may be the most critical factor

25


26/38

4.3. Pricing and the competitive

edge

Pricing is a very powerful weapon in the

marketers armoury Price is unarguable when considered alone.

than its competitors: is not matter of opinionor preference

26


27/38

Price war: is the outcome of head-to-head

conflict of the major players in achievingmarket supremacy.

players. Quality may be reduced to supportthe price reductions. So, the outcome is oftena reduction of competition.

27


28/38

V. Approaches to pricing

Target pricing

Perceived value pricing

Competitor related pricing

28


29/38

5.1 Cost plus pricing:

Definition: Cost plus pricing includes thevariable cost associated with the oods,

as well as a portion of the fixed cost.

The best pricing = cost + profit margin

29


30/38

5.2 Target pricing

Target pricing is where an organizationpitches a price which will deliver a target

period.

Pricing based on breakeven analysis

30


31/38

5.3 Perceived value pricing Price build up a perception of valuein

the mind of the purchaser.

31


32/38

5.4 Competitor related pricing

Price of competitors influence onapproaches to pricing.

Price followers are those entrants to amarket who simply follow the existing

players, very often pricing just below themarket leader

32


33/38

Price leaders are those entrants who

establish the going rate in a market thusproviding a basis for others to follow.

Price leader provide a benchmark in termof the economies of scale, they have

entered the beneficial sector of thelearning curve.

33


34/38

VI. COMPETITIVE

ADVANTAGE

Competitive focusCost leadership and differentiation

Chapter 10: Pricing 34


35/38

According toAccording to Competitive AdvantageCompetitive Advantageofof

Michael Porter in 1996, he has laid down theMichael Porter in 1996, he has laid down theprinciple that firms should compete at one ofprinciple that firms should compete at one oftwo level either as cost leaders or astwo level either as cost leaders or as

Chapter 10: Pricing

differentiators.differentiators.

Firms should do this in a broad or narrowFirms should do this in a broad or narrow

focus.focus.

35


36/38

Chapter 10: Pricing36


37/38

The two elements of competitive focusrefer to the scope of operation of the

.

The scope of operation can either besmall part of the available market ofindustry, or the more widely with a broadapproach to the opportunities which areappropriate.



38/38

Cost leadership is the outcome of anumber of competencies which enable

in the market.

Differentiation depends on the crafting of

a distinctive offering which responds withcompetitive advantage to the specializedwants of a market segment


Chapt 10 - Pricing

Documents

Transcript of Chapt 10 - Pricing