mkt8 - slide 1 to 9 1 8. pricing policies & strategies mkt8

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8. Pricing Policies & 8. Pricing Policies & StrategiesStrategies

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PricePrice

Market variable that can be changed most quickly, Market variable that can be changed most quickly, usually in response to competitor pricingusually in response to competitor pricingSeen as a financial expression of the value of the Seen as a financial expression of the value of the productproductConcept of value: Perceived value = perceived benefits – Concept of value: Perceived value = perceived benefits – perceived costsperceived costsCustomer’s motivation to purchase product, first from Customer’s motivation to purchase product, first from need/want (“I need/want food”); second comes from need/want (“I need/want food”); second comes from perception of value (“I really fancy a McDonalds”)perception of value (“I really fancy a McDonalds”)Perception of value varies with customers, and can be Perception of value varies with customers, and can be increased by either increasing the perceived benefits or increased by either increasing the perceived benefits or reducing the perceived costsreducing the perceived costs


List Price – what the customer paysList Price – what the customer pays

Includes:Includes: Physical good/servicePhysical good/service Assurance of qualityAssurance of quality Repair facilitiesRepair facilities PackagingPackaging CreditCredit WarrantyWarranty DeliveryDelivery


Pricing ObjectivesPricing Objectives

Companies concerned about pricing objectives Companies concerned about pricing objectives (one of the 4 Ps) as it directly affects (one of the 4 Ps) as it directly affects sales/earnings and competitivenesssales/earnings and competitiveness

Pricing objectives should fit company’s overall Pricing objectives should fit company’s overall marketing strategymarketing strategy

Types of pricing objectives:Types of pricing objectives: Profit-oriented: using target return objectiveProfit-oriented: using target return objective Sales-oriented: to get specified share of the marketSales-oriented: to get specified share of the market Status quo-oriented: maintain stable prices/competitor Status quo-oriented: maintain stable prices/competitor

activity (especially if satisfied with present situation)activity (especially if satisfied with present situation)


Influences on Pricing PolicyInfluences on Pricing Policy

Costs: need to recover most of the timeCosts: need to recover most of the time

Competitors: Need to accept market price in Competitors: Need to accept market price in conditions nearing perfect competitionconditions nearing perfect competition

Customers: what the customers are willing to Customers: what the customers are willing to pay; need to match desired sales (market share) pay; need to match desired sales (market share) with price-demand curve realitieswith price-demand curve realities

Business Objectives – maximise profits, make Business Objectives – maximise profits, make target return, achieve sales target, get/maintain target return, achieve sales target, get/maintain market share, match competition, etcmarket share, match competition, etc


Pricing StrategiesPricing Strategies

Full Cost Plus Pricing: (see p 530)Full Cost Plus Pricing: (see p 530)Return on Investment: (see p 534)Return on Investment: (see p 534)Expansionist Pricing:Expansionist Pricing:

Exaggerated form of penetration pricingExaggerated form of penetration pricing Setting low prices to establish mass markets, possibly at the Setting low prices to establish mass markets, possibly at the

expense of competitorsexpense of competitors Useful when entering new/international markets Useful when entering new/international markets Variation: a lower cost version offered at a very low price to gain Variation: a lower cost version offered at a very low price to gain

recognition/acceptance (only until this is achieved)recognition/acceptance (only until this is achieved) When offered in overseas market at prices lower than production When offered in overseas market at prices lower than production

cost – “dumping”cost – “dumping”

Penetration Pricing – to set lower prices so as to achieve Penetration Pricing – to set lower prices so as to achieve dominant market sharedominant market share


Pricing Strategies (contd)Pricing Strategies (contd)

Skimming: Skimming: charging a high price for a relatively short charging a high price for a relatively short

period – skim off customers willing to payperiod – skim off customers willing to pay Price lowered when demand from “early Price lowered when demand from “early

adopters” fallsadopters” falls

Variable/Marginal Cost Pricing (see p 546)Variable/Marginal Cost Pricing (see p 546)


Other Pricing StrategiesOther Pricing Strategies

Prestige Pricing – to evoke perceptions of Prestige Pricing – to evoke perceptions of quality/prestigequality/prestigePre-emptive pricing – discourage/deter Pre-emptive pricing – discourage/deter new potential entrants to the industrynew potential entrants to the industryExtinction pricing – used selectively to Extinction pricing – used selectively to limited geographical markets/certain limited geographical markets/certain product lines as a means to strategy (i.e., product lines as a means to strategy (i.e., attract customers to its other products attract customers to its other products which are more profitable)which are more profitable)


Transfer pricingTransfer pricing

Where the parties are somehow Where the parties are somehow connected – same parent company connected – same parent company (usually an issue in cross-border (usually an issue in cross-border transactions)transactions)

Using “arms length” principleUsing “arms length” principle

mkt8 - slide 1 to 9 1 8. pricing policies & strategies mkt8

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