Ent 3209 : Pricing and Costing Module 4.pptx

Pricing and Costing

1. Ent 3209: Pricing and Costing Module 4 – Price, Value Communication and Price Promotion

2. Topic Outline: Value Communication Adapting the Message for Product Characteristics Adapting the Message to Purchase Context The Buying Process Multiple Participants in the Buying Process Price Communication Proportional Price Evaluations Reference Prices Perceived Fairness Gain–Loss Framing Price Promotion

3. Discussion Questions: Why is there a need to communicate the value in our price? What will be the message content? What are the benefits that customers need to know? What about the costs?

4. Value Communication Value communication can have a great effect on sales and price realization when your product or service creates value that is not otherwise obvious to potential buyers.

5. Adapting the Message for Product Characteristics Product characteristics that influence buyer perceptions of key value drivers: Relative costs for information of the buyer Type of benefits sought— monetary or psychological.

6. Adapting the Message for Product Characteristics Relative cost of search is the financial and nonfinancial cost, relative to the expenditure in the category, that a customer must incur to determine differences in features and benefits across alternatives. Search goods Experience goods

7. Adapting the Message for Product Characteristics

8. Framework of Value Communication Strategies

9. https://www.youtube.com/watch?v=ma9_9EF3BmQ

10. Adapting the Message Content Value-based communications must not only be adjusted for product characteristics such as cost of search and benefit type, but also for the customer’s purchase context. Consider how the message would have to be adjusted depending on the specifics of the purchase context.

11. The Buying Process ( https://www.youtube.com/watch?v=pNPDABjxcvo ) Awareness of need Search for more information Evaluation of alternatives Actual purchase decision Post-purchase contact with firm

12. The Buying Process:Customer

13. The Buying Process: Seller

14. Discussion Questions: Describe the relative search cost framework. What is the importance of knowing it? What are the steps in the customer’s decision process? Why is there a need to know it?

15. Price Communication There are four aspects of price perceptions that have implications for price communications: Proportional Price Evaluations Reference Prices Perceived Fairness Gain-loss Framing

16. Proportional Price Evaluations Buyers tend to evaluate price differences proportionally rather than in absolute terms. Psychologists call this tendency the Weber-Fechner effect. This can explain the appeal of “free” services, which represent a 100% reduction in price, over other lesser discounts that have the same or even greater value.

17. Reference Prices A reference price is what a buyer considers a reasonable and fair price for a product. Marketers also influence reference prices by suggesting potential reference points. Promotional deals such as coupons, rebates, and special package sizes can influence reference prices strategically.

18. Perceived Fairness Fairness is, as one would suspect, subjective. However, because of this, it is also more manageable than one might think. Companies that frequently adjust prices are careful to set the “regular” price at the highest possible level, rather than at the average or most common price.

19. Gain-Loss Framing To make prices less objectionable, make them opportunity costs (forgone gains) rather than out-of-pocket costs. When a product is priced differently to different customers and at different times, set the list price at the highest level and give most people discounts. Unbundle gains and bundle losses.

20. Price Promotion Price promotion is a marketing technique where the price of a product is kept reduced for a short period to build customer loyalty and swell sales volume, and then increased later on.

21. Model of Communication by Promotional Discounts

22. Positive Effects of Price Promotions Price segmentation Market Size and Share

23. Negative Effects of Price Promotions Imperfect Segmentation Hedge Customer Churn Reference Price Effect Loss of Price Credibility Increase of Price Sensitivity

24. Discussion Questions: What are the four aspects of price communication? What is price promotion? Describe the model of communication by promotional discounts. What are the positive effects of price promotion? What about negative effects?

25. Price Promotion Design Targeted Temporary Special Irregular

26. Popular Forms of Promotion Design Coupons Trial Offers Rebates Promotional Bundles

27. Popular Forms of Promotion Design - Coupons

28. Popular Forms of Promotion Design – Trial Offers Trial Offers are simple price promotions that the seller uses to induce trial of its product. - Made in the form of free samples, small packages priced significantly lower or leased services and software as a service wherein cost to enter the market is greatly reduced from the full, regular price.

29. Popular Forms of Promotion Design – Rebates

30. Popular Forms of Promotion Design – Promotional Bundles

31. Popular Forms of Promotion Design – Early Purchase Discount Payment of the services in advance or paid in full to avail the discount. - Examples are booking for a hotel accommodation, airline tickets and paying the tuition in full.

32. Discussion Questions: What are the forms of price promotion design? Describe each of the popular forms of promotion design.

33. Summary An effective pricing strategy depends on more than just value. Buyers are also influenced by how that value is presented and communicated through the price. Most customers lack the time or the incentive to fully inform themselves about their alternatives .

34. Summary If you want them to recognize your value, you have to make the process easier for them by supplying them with information about your offer and what you think it should mean to them. When communicating prices, you should actively minimize customers’ adverse feelings about paying it. By controlling price progressions, reference prices, and perceptions of fairness, you can reduce negative reactions without reducing your margins.

35. Summary Price promotions are a form of price segmentation in which prices are reduced for those with a lower willingness to pay and regular prices are offered to those with a higher willingness to pay. Price promotions generate increased sales primarily through encouraging brand switching and secondarily through increasing the size of the market.

36. Summary In general, price promotions should strive to be targeted towards marginal customers. Other design criteria for price promotions include a desire for them to be temporary, special, and irregular. Price promotions take many forms, including specially marked packages, coupons, trial offers, trade deals, promotional sales, discounts, promotional bundles, and rebates. Each format of a price promotion has its strengths and weaknesses in targeting specific types of customers and achieving different marketing objectives.

37. Activity / Assignment Consider a price promotion with respect to two different products: a handheld video communicator (a new-to-the-world product) and a toothpaste made with all natural ingredients (a new-to-the-category product). In which case do you believe the price promotion will be more effective at increasing the market size? In increasing the market share?

38. Activity / Assignment 2. Consider a price promotion with respect to two different diapers: a currently marketed form of Huggies and a new and improved form of Huggies. a. In which case is the price promotion most likely to induce trial among new customers, and why? b. In which case is the price promotion most likely to affect the perceived reference price, and why? c. In which case is the price promotion most likely to reduce price credibility, and why? d. In which case is the price promotion most likely to increase the price sensitivity of the market, and why?

39. Activity / Assignment 3. Consider the following forms of price promotions according to their effectiveness at targeting customers for an existing, well-known, often-purchased, branded good. Rate them as either poorly targeted, targeted toward loyal customers, or targeted toward new customers. a. Newspaper b. Local retail store coordinated direct mail campaign c. Online coupon distributed by the manufacturer d. In-store coupon within a flyer

40. Activity / Assignment 4. General Motors (GM) regularly provides summer discounts to U.S. auto buyers. Consider the metrics of targeting, temporary, special, and irregular promotions. Are summer discounts a good form of price promotions for GM? Why do you make this claim? What would you want to know before determining if the summer discounts are a good form of price promotion?

41. Activity / Assignment 5. Quaker Oats often, but not always, puts coupons within the package of a box of Quaker Oats for redemption on the next purchase. These coupons provide discounts not only on the product purchased, but also on other Quaker Oats products. Consider the metrics of targeting, temporary, special, and irregular promotions. a. Are the in-package coupons a good form of price promotion for Quaker Oats? Why? b. What would you want to know before determining if in-package coupons are a good form of price promotion?