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Developing Pricing Strategies and Programs

This document provides an overview of developing pricing strategies and programs. It discusses key topics like consumer psychology and how prices are perceived, the steps to setting an initial price like determining costs and demand, ways to adapt pricing like discounts and price discrimination, and how to respond to competitors' price changes. The goal is to understand pricing not just as a number but as an important business element that can be used strategically to achieve objectives like market share or profits. It emphasizes that pricing requires considering many internal and external factors.

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Neza Ruzanna
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474 views

Developing Pricing Strategies and Programs

This document provides an overview of developing pricing strategies and programs. It discusses key topics like consumer psychology and how prices are perceived, the steps to setting an initial price like determining costs and demand, ways to adapt pricing like discounts and price discrimination, and how to respond to competitors' price changes. The goal is to understand pricing not just as a number but as an important business element that can be used strategically to achieve objectives like market share or profits. It emphasizes that pricing requires considering many internal and external factors.

Uploaded by

Neza Ruzanna
Copyright
© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
Available Formats
Download as PDF, TXT or read online on Scribd
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DEVELOPING

PRICING
STRATEGIES
AND
PROGRAMS
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Presentation
Outline

-Introduction

-Consumer Psychology and Pricing

-Steps in setting price

-Learning what Price Adaption

-Price Changes

-Responding to Competitors Price Changes


Introduction
PRICE
The only element that produces
revenue

UNDERSTANDING PRICING
Price is not just a number on a tag. It
comes in many forms and performs
many functions.

Price also has many components. If you


buy a new car, the sticker price may be
adjusted by rebates and dealer
incentives.
A Changing
Pricing Environment
Pricing practices have
changed significantly. At the turn
of 21st century, consumers had:
-Easy access to credit
-Enciting Market Campaign
-Progressive Technology
Internet has
been changing
how buyers and
sellers interact
Buyers can:
-GET INSTANT PRICE COMPARISONS FROM
THOUSANDS OF VENDORS
-NAME THEIR PRICE AND HAVE IT MET

-GET PRODUCTS FREE

Sellers can:
-MONITOR CUSTOMER BEHAVIOR AND TAILOR
OFFERS TO INDIVIDUALS
- G I V E C E R T A I N C U S T O M E R S A C C E S S T O SP E C I A L
PRICES
Consumer Psychology
and Pricing

Traditionally, economist assumed


that consumers were "price takers".
Marketers regocnize that consumers often
actively process price information.

How prices are perceived depends on their


disposable income, occasion of purchase, and
economic conditions.
3 KEYS TOPICS TO UNDERSTAND HOW
CONSUMERS PERCEIVE PRICES

REFERENCE PRICES
Fair Price, Typical Price, Last Price Paid, Upper-Bound Price, Lower Bound Price,
Historical Competitor Prices, Expected Future Price, Usual Discounted Price.

PRICE-QUALITY INFERENCES
Greater the price, better the quality.

PRICE ENDINGS
The way price ends, influences a buyer's psychology.
SETTING THE PRICE
A firm must set a price for the first
time when it develops a new
product.

STEPS IN SETTING A PRICING POLICY

1. Selecting the Pricing Objective


2. Determining Demand
3. Estimating Costs
4. Analyzing Competitors’ Costs, Prices,
and Offers
5. Selecting a Pricing Method
6. Selecting the Final Price
1. Selecting the Pricing Objectives
The company first decides where it wants to position its market
offering. Five major objectives are: survival, maximum current profit,
maxi- mum market share, maximum market skimming, and product-
quality leadership.

2. Determining Demand
Estimate probable quantify that will be sold at each price & determine
price elasticity of your good.

3. Estimating Costs
Price must cover variable and fixed costs and as production increases
costs may decrease. The firm gains experience, obtains raw materials
at lower prices, etc., so costs should be estimated at different
production levels.
4. Analyzing Competitor’s costs, prices, & offers
The firm should benchmark its price against competitors, learn about
the quality of competitors offering, & learn about competitor’s costs.

5. Selecting a pricing method


-Markup pricing: a 20% markup
-Target return pricing: this is based on ROI
-Perceived-value pricing: buyers perception of the product is key, not cost so
what is the product worth to consumer sets the price.
-Value pricing: more for less philosophy
-Going rate pricing; charge what everyone else is
-Sealed bid pricing: companies bid prices to get a job

6. Select final price


Price must cover variable and fixed costs and as production increases
costs may decrease. The firm gains experience, obtains raw materials
at lower prices, etc., so costs should be estimated at different
production levels.
6. Select final price
The firm must consider the following when selecting its final price.

-Psychological pricing such as a $100 dollar bottle of perfume sells


better than a $10 bottle. Also $299 is considered in the $200 range not
the $300.
-Advertising & brand quality must be examined
-Price must be acceptable to distributors, dealers, salesforce,
competitors, suppliers, & the government.
Adapting
The Price
Companies usually do not set a single price
but rather develop a pricing structure.

Structure reflects the variations in:


-geographical demand and costs
-market-segment requirements
-purchase timing
-order levels
-delivery frequency
-guarantees
-service contracts
Several adaptation strategies

1. Geographical Pricing (Cash, Countertrade,


Barter)

Barter Compensation Deal


Direct exchange of goods Payment in products and money

Offset
Receives payment in cash but agrees
to spend some of the money in the products of
that country
Buyback Arrangement
Payments in form of product manufactured by
the supplied equiment and cash.
Several adaptation strategies

2. Price discounts and allowances

Cash Dicounts
Discounts given to cash, Quantity Discounts
early or prompt payments. Discounts given to those who buy a large volumes.

Seasonal
Functional Discounts
Discounts given by manufacturers Discounts
to resellers. Discounts given to products
that are out of season.

Allowances
Discounts given to gain reseller participation
in special programs.
Several adaptation strategies

3. Promotional Pricing

Special Special
Loss-leader Cash
event customer
pricing rebates
pricing pricing

Longer Warranties
Low- Psychology
payment and service
interest discounting
terms contacts
financing
Several adaptation strategies

4. Differentiated Price
Price discrimination occurs when a company sells a
product or service at two or more prices that do not reflect a
proportional difference in costs.

First-degree price discrimination, the seller charges a


separate price to each customer depending on the intensity
of his or her demand.

Second-degree price discrimination, the seller charges less


to buyers of larger volumes.

Third-degree price discrimination, the seller charges


different amounts to different classes of buyers
Initiating and
responding to price
changes
Initiating Price Cuts
Companies sometimes initiate price cuts in a drive to dominate the market through lower
costs. Either the company starts with lower costs than its competitors, or it initiates price
cuts in the hope of gaining market share and lower costs.

A price-cutting strategy can lead to other possible traps:


-Low-quality trap.
-Fragile-market-share trap.
-Shallow-pockets trap.
-Price-war trap.
Initiating and
responding to price
changes
Initiating Price Increases
A successful price increase can raise profits considerably.
A major circumstance provoking price increases is cost inflation. Another factor leading to price
increases is overdemand.

It can increase price in the following ways, each of which has a different impact on buyers.
-Delayed quotation pricing.
-Escalator clauses. The company requires the customer to pay today’s price and all or part of any
inflation increase that takes place before delivery.
-Unbundling.
-Reduction of discounts.
Responding to
Competitors’ Price
Changes
The company must consider the product’s stage in the life cycle, its importance in the company’s
portfolio, the competitor’s intentions and resources, the market’s price and quality sensitivity,
the behavior of costs with volume, and the company’s alternative opportunities.

Homogeneous Market the firm can search for ways to enhance its augmented product. If it cannot find
any, it may need to meet the price reduction. In nonhomogeneous product markets, a firm has more
latitude.

Brand leaders also face lower-priced store brands. Three possible responses to low-cost competitors
are:
(1) further differentiate the product or service,
(2) introduce a low-cost venture, or
(3) reinvent as a low-cost player.87 The right strategy depends on the ability of the firm to generate
more de- mand or cut costs.
THANK
YOU

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