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    Session 7-8 - Pricing

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    generativeai69
    This document discusses various concepts related to pricing management, including: 1) It defines price, consumer psychology and reference prices, and discusses image pricing using status symbols like luxury bags. 2) When setting prices, companies must select objectives like short-term profit or market share, determine demand curves and estimate costs, and analyze competitors' pricing. 3) Various pricing methods are covered, including markup pricing based on costs and target rates of return, as well as forms of price discrimination and product mix pricing.

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    Session 7-8 - Pricing

    Uploaded by

    generativeai69
    11 views17 pages
    This document discusses various concepts related to pricing management, including: 1) It defines price, consumer psychology and reference prices, and discusses image pricing using status symbols like luxury bags. 2) When setting prices, companies must select objectives like short-term profit or market share, determine demand curves and estimate costs, and analyze competitors' pricing. 3) Various pricing methods are covered, including markup pricing based on costs and target rates of return, as well as forms of price discrimination and product mix pricing.

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    Marketing

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    Session 7-8_Pricing

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    This document discusses various concepts related to pricing management, including: 1) It defines price, consumer psychology and reference prices, and discusses image pricing using status symbols like luxury bags. 2) When setting prices, companies must select objectives like short-term profit or market share, determine demand curves and estimate costs, and analyze competitors' pricing. 3) Various pricing methods are covered, including markup pricing based on costs and target rates of return, as well as forms of price discrimination and product mix pricing.

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    © All Rights Reserved
    Download as PPTX, PDF, TXT or read online from Scribd
    Download as pptx, pdf, or txt
    11 views17 pages

    Session 7-8 - Pricing

    Uploaded by

    generativeai69
    This document discusses various concepts related to pricing management, including: 1) It defines price, consumer psychology and reference prices, and discusses image pricing using status symbols like luxury bags. 2) When setting prices, companies must select objectives like short-term profit or market share, determine demand curves and estimate costs, and analyze competitors' pricing. 3) Various pricing methods are covered, including markup pricing based on costs and target rates of return, as well as forms of price discrimination and product mix pricing.

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    Managing Pricing

    Session 7-8
    Price
    • Establishing and communicating the value of products and services to prospective
    customers
    • Actual cost of the product to the customers
    • The money a customer must pay for a product or service
    Consumer Psychology and Pricing
    • Reference prices
    • Image pricing
    • Pricing cues
    Possible Consumer Reference Price
    • Fair price
    • Typical price
    • Last price paid
    • Upper-bound price
    • Lower-bound price
    • Historical competitor price
    • Expected future price
    • Usual discounted price
    Image Pricing
    • Effective for status signaling/ego-sensitive
    products like premium bags, perfumes, luxury
    cars
    • Exclusivity and scarcity like Birkin Bags, Infinia
    Credit Cards
    When to Use Price Cues
    • Customers purchase item infrequently
    • Customers are new
    • Product designs vary over time
    • Prices vary seasonally
    • Quality or sizes vary across stores
    Setting Price
    • Select the price objective
    • Determine demand
    • Estimate costs
    • Analyze competitor price mix
    • Select pricing method
    • Select final price
    Setting Price: Price Objective
    • Short-term profit
    • Market penetration
    • Market skimming
    • Product-quality leadership
    Setting Price: Price Objective
    Pricing Goal How It's Done Key Considerations Example
    Objective
    Short-term Maximize current Estimate demand and costs - Need to know demand and cost functions Companies targeting
    Profit profits quickly function to set a price that (which can be tricky) quick profit, e.g., tech
    Maximization maximizes current profit - Focuses on short-term results, ignoring long- gadgets
    run considerations
    Market Maximize market Set a very low price to - Market is price-sensitive Companies looking to
    Penetration share attract a large customer - Costs decrease with increased production capture a large share,
    base, assuming price - Low price deters competition. e.g., Jio
    sensitivity.

    Market Capture Start with a high price to - Enough customers are willing to pay a Companies
    Skimming maximum profit attract customers willing to premium price initially emphasizing premium
    by targeting high- pay more, then gradually - High initial price doesn't attract more offerings, e.g., Sony
    value customers lower it. competitors premium headphones

    Product- Be known for the Charge a higher price to - Companies invest in quality and are willing to Rolls-Royce
    Quality highest quality invest in research, charge a premium
    Leadership development, and service - Focused on quality, luxury, and a loyal
    delivery. customer base
    Setting Price: Determining Demand
    • Price elasticity of demand
    • Price increase vs. Price cut
    • Price indifference band
    • Long-run vs. short-run price elasticity
    • Price elasticity of Demand
    = % change in quantity demanded/ %change in price
    Factors: Less Price Sensitivity
    • The product is more distinctive • Buyers are less aware of substitutes
    • Buyers cannot easily compare the • Another party pays part of the cost
    quality of substitutes • The product is used with previously
    • The expenditure is a smaller part of the purchased assets
    buyer’s total income • The product is assumed to have high
    • The expenditure is small compared to quality and prestige
    the total cost of the end product • Buyers cannot store the product
    Setting Price: Estimating Costs
    • Type of costs
    • Fixed costs: don't change with production volume (e.g., rent)
    • Variable costs: increase with each unit produced (e.g., raw materials,
    production utilities)
    • Total costs: fixed + variable costs
    • Average costs: total costs/production
    • Accumulated production (Experience curve effects)
    Setting Price: Analyzing Competitors’
    Price
    • How does the company’s market offering compare with competitors'
    offerings?
    • How strong are current competitors, and what are their current
    pricing strategies?
    • Where do competitors appear to be heading and what are their
    strategies?
    • What are the legal and ethical constraints on pricing in this industry?
    Setting Price: Selecting a Pricing
    Method
    • Markup pricing
    • Based on selling price = unit cost/ 1- desired markup percentage
    • Based on cost = unit cost X (1+ desired markup percentage)

    • Target-rate-of-return pricing
    = cost of product + (desired RoI X invested capital)/ number of units produced

    • Economic-value-to-consumer (Perceived-value pricing)


    = reference price + differential benefits

    • Competitive pricing (Going-rate pricing)


    • Auction-type pricing
    • English auction (ascending bids)
    • Dutch auctions (descending bids)
    • Sealed-bid auction
    Setting Price: Setting the Final Price
    • Price discrimination
    • Product mix pricing
    Price Discrimination
    • First degree: Charges each customer a different price
    • Second degree: Charges less to buyers of large volume
    • Third degree: Different prices to different consumer segments
    • Customer-segment pricing
    • Product-form pricing
    • Image pricing
    • Channel pricing
    • Location pricing
    • Time pricing
    Product-mix Pricing
    • Loss-leader pricing
    • Optional-feature pricing
    • Captive pricing
    • Two-part pricing
    • By-product pricing
    • Product-bundling pricing

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