global pricing

Global Pricing

Dmytro Pustovalov

Tariq Aziz

Kirillos Fiodorov

02/05/2012

Agenda

Factors to consider in setting a price

Pricing Methods

Pricing Strategies

Pricing Tactics

Price

• The amount of money charged for a product, or the sum of the values that consumers exchange for the benefits of having/using the product or service.

Price is …main element to produce revenues ….most flexible element …a tool of competition ….can be changed quickly


Pricing Policy and Decision

Cost of the Product

Economic Conditions

Company Objectives

Customer Needs and

Characteristics

Competition

Four views of price

Economists view Price is set by the forces of supply and demand

Accountant’s view

Price should cover costs so that a profit can be made

Customer’s view Price has to represent good value

Marketer’s view Pricing is an opportunity to gain a competitive advantage

Factors to Consider in Setting Price

• Marketing objectives

• Marketing mix strategies

• Costs

• Organizational considerations

• Market positioning influences pricing strategy

• Other pricing objectives:

– Survival

– Current profit maximization

– Market share leadership

– Product quality leadership

• Not-for-profit objectives:

– Partial or full cost recovery

– Social pricing

Internal Factors



• Costs


• Pricing must be carefully coordinated with the other marketing mix elements

• Target costing is often used to support product positioning strategies based on price

• Non-price positioning can also be used

Internal Factors

Factors to Consider in Setting Price (contd.)



• Costs


• Types of costs:

– Variable

– Fixed

– Total costs

• How costs vary at different production levels will influence price setting

• Experience (learning) curve effects on price

Internal Factors




• Costs


• Who sets the price?

– In Small companies: CEO or top management

– In Large companies: Divisional or product line managers

• Price negotiation is common in industrial settings

• Some industries have pricing departments

Internal Factors


• Nature of market and demand

• Competitors’ costs, prices, and offers

• Other environmental elements

• Types of markets

– Pure competition

– Monopolistic competition

– Oligopolistic competition

– Pure monopoly

• Consumer perceptions of price and value

• Price-demand relationship

– Demand curve

– Price elasticity of demand

External Factors





• Consider competitors’ costs, prices, and possible reactions when developing a pricing strategy

• Pricing strategy influences the nature of competition

– Low-price low-margin strategies inhibit competition

– High-price high-margin strategies attract competition

• Benchmarking costs against the competition is recommended

External Factors





• Economic conditions – Affect production costs – Affect buyer perceptions of

price and value

• Reseller reactions to prices must be considered

• Government may restrict or limit pricing options

• Social considerations may be taken into account

External Factors


Pricing Methods

Pricing Method

Cost-Oriented Method

• Focus on cost, not market condition

Market-Oriented Method

• Focus on both – market conditions and costs

Cost-Oriented Method

Markup pricing – adding markup to

unit cost of product

• Information needed: fixed cost, variable cost, expected sales, markup

• Appeal is simplicity

• Risks: overpricing and underpricing

Standard pricing - charging the same

price in all countries

• Drawbacks: lacks marketing orientation, difficult to implement

• Advantage: firm won’t be blamed for price discrimination

Target return pricing - setting a target rate

or return

• Information needed: total investment, desired target return, unit cost, expected sales

• Drawbacks: lacks marketing orientation, sales and cost estimates must be accurate

Market-Oriented Method

Market-based pricing

• - may attract accusations of unfair pricing and encourage the practice of gray marketing (buying in low-price countries, selling in high-price countries)

Strategic pricing

• setting minimum standard price while giving local managers freedom to charge more

Pricing Strategies

Penetration Pricing

Penetration Pricing

• Price set to ‘penetrate the market’ • ‘Low’ price to secure high volumes • Typical in mass market products – chocolate bars,

food stuffs, household goods, etc. • Suitable for products with long anticipated life

cycles • May be useful if launching into a new market

Market Skimming

Market Skimming

High price, Low volumes

Skim the profit from the market

Suitable for products that have short life cycles or which will face competition at some point in the future (e.g. after a patent runs out)

Examples include: iPhone, PlayStation, jewellery, digital technology, new DVDs, etc.

Value Pricing

Value Pricing

• Price set in accordance with customer perceptions about the value of the product / service

• Examples include status products/exclusive products

Companies may be able to set prices according to perceived

value.

Tender Pricing

Tender Pricing

• Many contracts awarded on a tender basis

• Firm (or firms) submit their

price for carrying out the work

• Purchaser then chooses

which represents best value • Most government contracts

Price Discrimination

Price Discrimination

• Charging a different price for the same good/service in different markets

• Requires different price elasticity of demand in each market

• Air/rail – First class

– Business class

– Economy class

Prices for the flight differ for the same journey at different class

Marginal Cost Pricing

Marginal Cost Pricing

• Marginal cost – the cost of producing ONE extra or ONE fewer item of production

• MC pricing – allows flexibility

• Particularly relevant in transport where fixed costs may be relatively high

• Allows variable pricing structure – e.g. on a flight from London to New York – providing the cost of the extra passenger is covered, the price could be varied, a good deal to attract customers and fill the aircraft.

• Get one extra student and get fees discount.

Target Pricing

Target Pricing

• Setting price to ‘target’ a specified profit level

• Estimates of the cost and potential revenue at different prices, and thus the break-even have to be made, to determine the mark-up

• Mark-up = Profit/Cost x 100

• This strategy is used by many clothes retailers where they can add upto 60% mark-up on the basic cost of the clothes. So even with a 50% sales offer they still make a profit!

Pricing tactics

Pricing tactics

Unlike pricing strategies, these refer to the short run

Predatory

pricing (illegal)

Psychological pricing

Loss leaders

Promotional pricing and discounts

Price wars

Predatory pricing

• Predatory pricing occurs when a dominant company incurs losses with the purpose of removing a competitor and/or deterring other potential competition

• This anti- competitive practice is used when competitors threaten to reduce market share and profitability

• Illegal if it can be proved

Microsoft – have been accused of predatory pricing strategies in offering

‘free’ software as part of their operating system – Internet Explorer and Windows Media Player - forcing

competitors like Netscape and Real Player out of the market

Price wars

Competitive price reductions by firms in a competitive industry

Each seeks to increase market share by price reduction but the result is destroying a price level

The process continues until weaker firms go out of business

Price wars might be seen as good for customers in the short run but it is harmful in the long run if competition is reduced


• In this case consideration is given to the psychology of prices and not simply the economics of pricing

• Charging at a price which ends in 99p is a way of deceiving people into believing that the product is cheaper than it really is


• Prestige Pricing – sets a higher than average

price to suggest status


• Multiple-Unit Pricing – 3 for $.99

• Suggests a bargain and helps increase sales volume.

• Better than selling the same items at $.33 each.


• Everyday Low Prices (EDLP) – set on a consistent basis

Loss leaders

• A loss leader is a product prominently displayed and advertised and price below the normal price and even below cost to the seller

• A product which is sold at a low (even loss making) price in order to encourage customers to buy other full price products from the business along with the loss leader product

• Loss leaders are widely used by supermarkets to draw in customers from competitors

• The aim is to encourage people to buy complementary goods at full price

Promotional pricing and discounts

Type of discount

Who for?

Cash For those who pay cash

Quantity For customers who buy large volumes (bulk buying)

Trade Intermediaries in the trade

Seasonal For buying off peak or out of season

Promotional Temporary pricing of products below list price to increase short run sales

global pricing

Education

market low price

market skimminghigh

setting price contd

penetration pricing

pricing objectives

highprice countries

internal factors pricing

madecustomers view price