Marketing Management - session 8-Price.pptx

price in marketing

1. Marketing Management Prepared by Shahin Rasoulian 1 Session 8 : Chapter 7 Price

2. Objectives Role of price, Pricing methods, Pricing objectives and strategies session 8 2

3. Definition of price From buyers perspective, Price is the amount spent plus the time and psychological cost incurred to obtain a product. 3 session 8 Amount spent Time Psychological cost Price

4. Pricing tricks session 8 4 16.99

5. Pricing tricks session 8 5 50 inch TV Samsung 800$ 48 inch TV Samsung 600$ 48 inch TV Samsung 590$ + 10$ shipping 48 inch TV Samsung 600$ including shipping

6. 6 Pricing process session 8 Price Target Positioning Product Place Promotion Etc.

7. Production line session 8 7

8. Production costs Fixed costs (overheads): Do not vary with the number of units produced. Usually they are monthly payments. Rent, insurance, salary of managers and specific subordinates, equipment, etc. Usually they are monthly payments. Variable costs: Vary with the number of units produced. Raw materials, energy, salary of employees and workers, etc. Sunk costs: Cannot be recovered or stopped. Advertising, specific machines, software, etc. session 8 8

9. 9 Pricing process session 8 1- Profit-oriented objectives The price should recover the production and development cost and earn profit. Profit maximization (short –term) Acceptable price (long-term) and Target return on investment

10. 10 Pricing process session 8 Strategies based on business costs Cost-plus pricing Price is based on cost and profit. Does not consider the nature of the market, demand, competition, product life cycle, product image. Works for retailers and wholesalers. Skimming Setting high price for a new product and then decrease When expecting top-spending, least price-sensitive segments New- to- the-world products Competitors are not able to enter the market in short term

11. Example for skimming session 8 11 Sony HDTV 28-inch in 1990: 43 000$ Sony HDTV 28-inch in 1993: 6000$ Sony HDTV 40-inch in 2001: 2000$ Now : 500$ ?

12. 12 Pricing process session 8 1- Cost-based methods For acceptable profit, ROI Price= total cost (fixed cost + variable cost) + profit Market price    

13. 13 Pricing process session 8 Cost-based methods Break-Even Analysis B  

14. 14 Pricing process session 8 Demand-based methods Difficult to estimate, difficult to apply in practice, but gives an overview to the company Useful for profit maximization, skimming

15. 15 Pricing process session 8 2- Competition-oriented objectives The price should maintain or increase the market share. (volume, not profit). Long-term Market is growing (volume) Treats of newcomers

16. 16 Pricing process session 8 Strategies determined by competitive pressure Price leadership By leader or followers Competitive parity About equal to key competitors Low-cost When the company has competitive cost advantage

17. Strategies determined by competitive pressure It depends on the production line Complementary product Price bundling 17 Pricing process session 8

18. Strategies determined by competitive pressure Penetration Setting a low price for a new product and then keep or decrease 18 Pricing process session 8

19. 19 Pricing process session 8 Competition-based methods Set the price above, below or the same as competitors. Customers become sensitive on features other than price Little profit for companies Company ignores consumer behavior and focuses on price

20. Price war Commercial competition characterized by the repeated cutting of prices below those of competitors. session 8 20 A C B D

21. 21 Pricing process session 8 3- Customer perception-related objectives The price should project the desired image of the product. Prestige and quality Affordability/Accessibility

22. 22 Pricing process session 8 Strategies based on consumer perceptions Quality signaling Prestige signaling Accessibility signaling

23. 23 Pricing process session 8 Customer-based methods Setting the price according to the benefits or value of the product. Monetary costs Search costs Psychic costs Benefits Sacrifices Value= Specially works in personalized segmentation It is difficult to understand the benefits and sacrifices of customers

24. 24 Pricing process session 8 4- Sales-related objectives The price should increasing the sale (not profit) Easy to quantify Short term Production overcapacity Economic crisis

25. Big picture of pricing strategies 25 Context Pricing strategy External influences Competitive pressure Price leadership Competitive parity Low-cost pricing Consumer preferences Price signalling (for example, prestige price) Internal influences Company costs Cost-plus pricing Product lines Complementary product Price bundling Customer value Product life cycle Launch, growth, maturity, decline session 8

26. Big picture of pricing methods 26 Advantage Disadvantage Cost-based - Simple Guarantees a profit on all items sold Difficult to estimate sales and the level of production before setting the selling price Does not consider consumer reaction to the price suggested Competition-based Easy to assess the value of the product relative to those of the competitors Companies are at the mercy of the competition Demand-based Maximize profit Difficult to apply Customer-based Realistic, takes into account customers’ points of view Difficult to quantify the value session 8

27. Environmental influences on price setting 27 Price-setting process External environment: Competition Consumers Distribution Intermediaries Economic environment Governments Legal environment Internal environment: Company’s costs Existing product line Product life cycle session 8

28. More concepts Price discrimination Predatory pricing Deceptive pricing session 8 28