CHAPTER 11 PRICING STRATEGY

Presented By: Muhammad Irfan Jahangir Ilyas Presented to: Maam Sadia

 Strategic Role of Price

Analyzing the Pricing Situation Selecting the Pricing Strategy Determining Specific Prices and Policies

Pricing Decisions are Creating Major Challenges for Many Companies

Examples Include:

Threats to major airlines by discount carriers. Pressures on drug companies to reduce prices. Intense price competition on supermarket chains by Wal-Mart and Costco. Aggressive discounting by U.S. automobile producers to retain market share. Threats to strong brands by counterfeit products.

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STRATEGIC ROLE OF PRICE

We put pricing at the beginning of the process. For

example, a multi-part marketing strategy usually is required in value-based pricing. Airlines complicated service packages with arcane restrictions, and their multiple channels of distribution must support pricing that reflects different values of the service to different segments. Without such a strategy, airlines would capture a much smaller portion of the value
they have the potential to create.

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Price in the Positioning Strategy

Target market and objectives

Product strategy

Positioning Strategy

Value-Chain strategy

Pricing strategy

Promotion strategy
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Pricing Situations

New product pricing

Life cycle pricing Changing positioning strategy Countering competitive threats

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Various Roles of Pricing

Signal to the Buyer Marketing Program Considerations

Instrument of Competition

Improving Financial Performance

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Pricing Strategy for New and Existing Products

Set Pricing Objectives Analyze the Pricing Situation

Select Pricing Strategy

Determine Specific Prices and Policies

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Examples of Pricing Objectives

Gain market position Achieve financial performance Product positioning Stimulate demand Influence competition

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ANALYZING THE PRICING SITUATION

Customer Price Sensitivity Pricing Objectives Analyzing the Pricing Situation

Product Costs

Competitors Likely Responses

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Customer Price Sensitivity

1. How large is the product-market in terms of buying potential? 2. What are the market segments and what market target strategy is to be used? 3. How sensitive is demand in the segment(s) to changes in price?

4. How important are nonprice factors, such as features and performance?

5. What are the estimated sales at different price levels?

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Buyers Perceptions of Value Offerings of Brands A-E

Perceived Value

Superior Value Zone D

A B E

Inferior Value Zone

Perceived Price

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Cost Analysis for Pricing Decisions

Determine the components of the cost of the product. Estimate how cost varies with the volume of sales.

Analyze the cost competitive advantage of the product.

Decide how experience in producing the product affects costs. Estimate how much control management has over costs.
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Competitor Analysis

Which firms represent the most direct competition Competitors positioning on a relative price basis

Competitors success with their pricing strategies

Competitors probable responses to alternative price strategies

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SELECTING THE PRICING STRATEGY

How much flexibility exists?

How to position price relative to costs?

How visible to make the price of the product?

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Determinants of Pricing Flexibility

Demand Pricing Objectives

Competition

Demand-Cost Gap

Costs

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Determining Feasible Prices

Price too high; little or no demand

Range of feasible prices

Price Ceiling

Nature of demand in target market

Business and marketing strategy

Product differentiation Competitors prices Prices of substitutes Product costs

Price Floor

Price too low; no profit possible

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Above Competition

Skim strategy

Neutral strategy (same as competition)

Below Competition

Penetration strategy
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Diplomacy rather than force

Select competitive confrontations

Competitive Pricing Issues

Target segments instead of volume

Signaling

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Illustrative Price Strategies

Active strategy

Low relative price

Lowactive strategy Lowpassive strategy Passive strategy

Highactive strategy Highpassive strategy

High relative price

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Legal and Ethical consideration

Price Fixing

Price Discrimination
Deceptive Pricing

Predatory Pricing

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DETERMINING SPECIFIC PRICES AND POLICIES

Selecting Specific Prices

Policies to Manage Pricing Strategy

Special Pricing Issues

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Basis of Determining Specific Prices

Cost

Demand

Competition

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Establishing Pricing Policy and Structure

Policy

Discounts, allowances, returns, and other operating guidelines

Pricing Structure Product mix and line pricing relationships How individual items in the line are priced in relation to one another

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Managing Pricing Strategy

1.

The more that the competitors and customers know about your pricing, the better off you are. In an information age, it is necessary to be transparent about prices and the value of a firms offerings. In highly competitive markets, the focus should be on those market segments that provide opportunities to gain competitive advantage. Such a focus leads to a value-oriented pricing approach. Pricing decisions should be made within the context of an overall marketing strategy that is embedded within a business or corporate strategy.

2.

3.

4.

Successful pricing decisions are profit oriented, not sales volume or market share oriented.

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Special Pricing Management

Price Segmentation Value Chain (Distribution Channel) Pricing

Price Flexibility
Product Life Cycle Pricing

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