pricing summer student
TRANSCRIPT
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7/24/2019 Pricing Summer Student
1/17
1Ganesh Iyer
Pricing Strategies
Session 7
XMBA 206.1
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7/24/2019 Pricing Summer Student
2/17
2Ganesh Iyer
Analysis Framewor
Market
Customer AnalysisCompetitor
Analysis
Company AnalysisMarketing Myopia
Marketing Strategy
Product
Price
Promotion
Place
Marketing Orientation
Perceptual mapping
SegmentationPositioning
First mover advantages
Branding
Pricing processPricing and innovation
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7/24/2019 Pricing Summer Student
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3Ganesh Iyer
!conomics o" Pricing
#wo Pro$lems with Single Price Strategy
Leave money on te ta!le Some customers are "illing to pay more
Pass#up Pro$it
Some potential customers "ere not served even toug te $irm couldave served tem at prices a!ove te marginal cost
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7/24/2019 Pricing Summer Student
4/17
%Ganesh Iyer
Price %&stomi'ation(
Price )iscrimination an* Sel"+selection
&yer's Car"as ()ample
Price * o$ Car "ases
3 +,,,% 3,,,
-o" to Price . /at is te !est single price.
Can you increase revenues. &$ so to "at level.
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7/24/2019 Pricing Summer Student
5/17
+Ganesh Iyer
Price )iscrimination an* Sel"+Selection
%ons&mer %o&,oning
/y coupons0
People "o are "illing to pay more tend to ave a iger personal time cost andare tere$ore less likely to clip coupons
isadvantage is non#redemption costs Companies spent appro) 45 B on distri!uting 2+6 B coupons o$ "ic 35 B "ere
actually redeemed
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7/24/2019 Pricing Summer Student
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5Ganesh Iyer
-ey Princi,les
Consumers are eterogeneous in teir "illingness to pay Carge according to consumer price sensitivity Make sure tat people "it
inelastic demand pay more and people "it elastic demand pay less
7ey Pro!lem (nsuring sel$#selection8segmentation $ences
Make sure tat prices directed at one segment cannot !e taken advantage o$ !yte oter
-o" sould you acieve tis. &denti$y a 9!ad: $or te ig "illingness to pay segment and !undle it "it te
product to create a product $or te lo" segment #his is where ,ro*&ct *esign an* ,ricing comes together.
Segmentation $ences in airline pricing signi$icant increase in prices ; 1% days !e$ore departure
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7/24/2019 Pricing Summer Student
7/176Ganesh Iyer
Price %&stomi'ation
$ser/a$le %haracteristics
< Based on o!serva!le caracteristics tat signal !uyers' price sensitivity ttp0=="""cessclu!com= 0 Students0 42>>+=year? Adults0 4+>>+
AMC teaters can o!serve te consumer#type using is student &@ seniors
Customer 1o student & 456+ Customer 2-aas student & 4%6+
Customer 3-aas student & 4%6+
etc
Select te segmentation varia!les tat Separate consumers !ased on o!serva!le caracteristics into groups "it di$$erent
sensitivities eg@ a!ility to pay tuition@ age movie
Are o!serva!le and targeta!le "itout great e)pense eg@ Lotus 1#2#3 432+ $or $irsttime !uyer@ 4>> $or upgrades
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7/24/2019 Pricing Summer Student
8/17DGanesh Iyer
Price )iscrimination
P&rchase ocation
Consumers at di$$erent purcase locations ave di$$erent pricesensitivity Cure $or antra)0 4%+, in te ES 41>, in Canada
ttp0=="""canadadrugscom
Staples "e!site asks $or ip code ttp0=="""staplescom=
Select segmentation varia!les tat ensure di$$erent segments purcase at di$$erent locations
ig enoug sipping cost to prevent ar!itrage
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7/24/2019 Pricing Summer Student
9/17>Ganesh Iyer
%&stomi'e By #ime o" P&rchase
Pea+loa* ,ricing0 designed to re#distri!ute usage $rom peaktime to o$$#peak time
Gedeye $ligt
On demand computing
(lectronic road pricing
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7/24/2019 Pricing Summer Student
10/171,Ganesh Iyer
!lectronic oa* Pricing
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7/24/2019 Pricing Summer Student
11/1711Ganesh Iyer
Psychology in Pricing Strategy
Heans0 4%28432?ttp0=="""1macyscom=catalog=product=inde)ognc.
&I2,%,,%JCategory&I11221JLinkKypeI(verreen
Gole) "atc0 41,@,,, ttp0=="""role)com=en= >@>>, >@>6+
Gelative price di$$erence matters not te a!solute matters
/e!er#Fecner la"0 Gelative price di$$erence and not te a!solutematters
/e!er gradually increased te "eigt tat a !lind$olded man "as oldingand asked im to respond "en e $irst $elt te increase
Gesponse "as proportional to a relative increase in te "eigt &$ te "eigt is 1 kg@ an increase o$ 1, grams "ill not !e perceived &$ "eigt is 2, grams@ an increase in 1, grams is perceived Applies to sound@ vision etc
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7/24/2019 Pricing Summer Student
12/1712Ganesh Iyer
Psychology in Pricing Strategy
Mental %ategori'ation
& "ill so" you t"o numerical di$$erences Look at tem uicklyN
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7/24/2019 Pricing Summer Student
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Psychology in Pricing
/ic di$$erence do you tink is greater.
Odd num!er pricing 4,>> vs 41,, /y ike soes are priced at 46>>>@ not 4D,N
Keoretical underpinning0 Mental categoriation
Price uality perceptions Koronto $lea markets
ttp0=="""torontocom=sopping=listing=,,,#211#236
Pricing and visi!ility Mark Laracy0 9&$ you like Opium you "ill like ina:
Pricing and social net"orks Pricing Krump to"ers
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Ganesh Iyer
Pros,ect #heory -ahnemann an* #/ersy3
One additional dollar gives a lesser increase insatis$action or value tan te dissatis$action caused!y a one dollar decrease
iving or taking a dollar
People $eel te pain o$ losses muc more tan tey$eel te appiness o$ euivalent gains
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Ganesh Iyer
Pros,ect #heory
A,,lications
En!undle gains0 Sports &llustrated@ o$$er additional !ene$its rater tan a discountBundle Losses0 Sellers o$ consumer dura!les and "arranties ()ample@ a 4+, "arranty $or46,, appliance
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Ganesh Iyer
Managing %om,etition
Price Matching %ra'y !**ie3
&n te e" ork city stereo "ars Cray (ddie ad made is trademark Wecannot be undersold. We will not be undersold. Our prices are thelowest.guaranteed. Our prices are insane.
-is main competitor e"mark J Le"is is no less am!itious /it any
purcase you get te store's 9Lifetime low-price guarantee: &t promisesto re!ate dou!le te di$$erence i$ you can $ind a lo"er price else"ere&$ a$ter your purcase $rom e"mark you $ind te same item at a lo"erprice proo$ o$ purcase reuired@ in te marketing area@ during teli$etime o$ your purcase@ e"mark "ill give you a 2,,Q gi$t certi$icatere$und 1,,Q o$ te price di$$erence plus an additional 1,,Q
/at "ould appen to prices "en $irms compete !y o$$ering tese guarantees.
/at could !e te reasons "y tese retailers adopted tese policies in te $irst
place.
/ould tese price matcing guarantees claims increase competition !et"eente t"o retailers and reduce teir pro$its or "ould it do te opposite.
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Ganesh Iyer
-ey Messages
eveloping pro$ita!le pricing strategies is a critical and creativee)ercise
Pricing is te only element o$ te marketing mi) "ose cost isgetting it "rong
Pricing's impact on pro$ita!ility is o$ten more signi$icant andmore immediate tan te impact o$ oter elements o$ te
marketing mi)