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Marketing Project: Pricing Strategies

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Prince Datu

on 11 October 2012

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Transcript of Marketing Project: Pricing Strategies

What do you think when you hear the words;

“Pricing Strategy”? Introduction Price Changes Price Adjustment Strategies Product Mix Pricing Strategies Why does the price of a product change? Public Policy and Pricing Marketing Group 4 Pricing Strategies Low price?
Larger quantity?

Let’s discuss Pricing strategies change as a product goes through its life cycle. The introductory phase is often the most challenging. New-Product Pricing Strategies company invents new product Market Skimming Pricing Instead of setting a high price to "skim" the market, a company can choose to set price low initially in order to "penetrate" the market quickly and deeply;

* to attract a large number of buyers
* to quickly gain market share Market-Penetration Pricing Changes in;

Material costs
Buyer’s needs
Competitive landscape Product Line Pricing Pricing strategy to offer optional or additional accessory products along with the main product.

ex. Car Trims

Companies are challenged to weigh which accessories or features would affect the price option. Optional-Product Pricing Seller establishes multiple price points to differentiate quality or quantity

Ex: TV’s, phones

Management is often in charge of setting up price steps in between lines.

points to consider:
* Differences between products in the line. ex. Features vs functions
* Customer evaluation of those features
* Competitors pricing Companies that makes products that must be used along a MAIN product are using Captive-Product Pricing.

Ex. Razor blades, video games, printer cartridges, ink refills etc.

Manufacturers usually price the MAIN product low and makes up the cost by raising the cost on the supplies. Captive-Product Pricing Processed meats, petroleum products, chemicals and other various prodmucts often generate by-products during production and disposing of these products might be costly and will raise the overall price.

in order to cut costs, manufacturers will seek a market for these products to regain some of the capital used for production. The amount sold for these by-products are generally higher than the cost of storing and delivering them.

ex. Wood shavings and pulp products, manure for fertilizers. By-Product Pricing Sellers often combine products in a package and offer the bundle at reduced prices.

ex. Personal computer packages, Internet and cable services. Product Bundle Pricing Most companies adjust their basic price to reward customers for certain responses such as;

* early payment of bills
* volume purchases
* off-season buying Discount and Allowance Pricing Companies adjust their pricing to allow for difference in location, types of customers and time. The product or service being offered is the same but at two or more price points.

Customer-segmented pricing: When different customers pay different amounts for the same service.
ex. Cost of riding a jeep is different for students and elders than it is for working class.

Location pricing: Price is based on different locations, even though the cost for each location is the same.
ex. Prices of seats in a plane is different based on location (window vs. aisle seats)

Time Pricing: Pricing for a service is different based on the month, day, or even hour
ex. Happy Hours in bars.

Also called Revenue Management by Robert Cross or Yield Management
commonly practiced by Airlines, hotels and upscale restaurants Segmented Pricing Price says something about the product, this is one way customers perceive quality. Psychological Pricing
Used to create a sense of excitement urgency.

Usually as an attention-grabber or to bring traffic to the store with the target that buyers will buy other items at normal mark-ups.

Most commonly used by Supermarkets and clothing stores.
ex. Cash Rebates, Free Maintenance, Limited-time offers. Promotional Pricing A company usually decides on price differences of products based on location. Especially if raw materials, taxes, logistics and distribution of the product is relatively higher in those areas.

Different approaches to minimize cost, mostly has something to do with shipping cost. Various approaches are;

FOB-Origin pricing - Products are placed free-on-board a carrier, customers then shoulder the cost of bringing it to their destination.

Uniform-delivered pricing - Seller sets one standard price including freight regardless of location.

Zone pricing - Seller sets up one or more zones, all customers within that specific zone will be charged the same price, the farther the zone the higher the price.

Basing-Point pricing - Seller elects specific points from where the product or service will come from and charge based on that location to the customer.

Freight absorption pricing- Seller shoulders all shipping cost in order to win desired business. Geographical Pricing Companies that sell their products internationally use various factors to determine their products pricing locally;

Economic conditions
Competitive situation
Local laws and regulations
The wholesaling and retailing system

Consumer preference can also vary from country to country, calling for different prices or the company may have different marketing objective in various world markets, which would require pricing strategy. International Pricing In some cases, companies may consider cutting its price. Initiating price cuts A major factor in price increase is cost inflation. Rising cost of production squeezes manufacturer's profit margin and forces the cost to be passed on to consumers.

Another factor for price increase is Overdemand. When a company cannot supply all of its customer's needs, it can raise its prices or ration its products to customers, or both. Initiating price increase Buyer Reactions to Price Changes
In some cases the company may desire to make price changes either a cut or an increase. In either case, it is mostly dependent on;

the target buyer
competitors Why did the competitor change prices?
to take more market share?
to use excess capacity?
to meet changing cost condition?
to lead an industry-wide price change?
is it temporary or permanent?
what will happen to the company's market share if it does not respond?
what will be the reaction of the other competitors? Responding to Price Changes Are subjected to an incredibly complex array of environmental and competitive forces.

A company sets not a single price, but rather a pricing structure that covers different items in its line.

Over time, as products go through their life cycles, a company can decide to adjust pricing to reflect costs and demand to account for buyers and situations Product Decisions sets prices high to start to "skim" revenue layer by layer adjust price according to market response Conditions: Quality must support high cost Cost of producing smaller volume < market entry price Competitors should not be able to easily enter the market and cut at the price. there are two approaches: The strategy for a product often has to be changed when it is part of a product mix. In this case, companies look for a set of prices the profits on the TOTAL product mix. 5 different product mix pricing situations Companies usually their basic prices to account for various customer differences and situations. 6 different pricing situations Discounts can be; Cash discount
Quantity discount
Functional or Trade discount
Seasonal Discount
Trade-in allowances
Promotional allowances For Segmented pricing to work, there must be real differences in customer's perceived value. In psychological pricing, sellers consider the psychology of the prices and not the economics.

ex. Baby Milk formulas, Branded medicines vs. Generics

another aspect of Psychological pricing is Reference prices - perceived benchmark prices of buyers regarding certain products as compared to others.

ex. People are People brand vs. SM Savers brand. Possible Adverse effects; Deal-Prone customers
Industry Price Wars Excess Capacity: In order to get more business when it cannot be achieved through increased sales effort, product improvement or other measures, the seller can choose to match the competitor's price to gain business

Falling market shares: If a company is facing strong competition, they might choose to drop prices.

Market Domination: A company can also elect to lower price to dominate the market. How to mitigate negative customer reactions to price Increases; Communicate effectively to customers why prices are being increased
Eliminating discounts
increasing minimum order sizes
lowering production of lower-profit products Competitor Reactions to Price Changes whether the price is lowered or raised, the action will affect buyers, competitors, distributors, even the government as well. Customers do not always interpret prices in a straightforward way. they may view it several ways;

is the price change affecting quality?
are they coming out with a newer model? Competitors are most likely to react when the number of firms are small, when the product is uniform and when buyers are well-informed.

this is dependent per company and further analysis is required as to why and how. in this case the company must make an analysis of its own. Has competitor cut price? NO Will lower price affect our
market share and profits? can/should effective action
be taken? Hold current price, continue
to monitor competitor price YES Reduce price
Raise perceived quality
Improve quality and price
Launch low-price
"Fighting Brand" Federal legislation on price-fixing states that sellers must set prices without talking to competitors. Otherwise "price collusion" is suspected. Pricing within Channel Levels The Robinson-Patman Act seeks to prevent unfair "price discrimination" by ensuring that sellers offer the same price terms to customers at a given level of trade.

ex. given the same bulk quantity, San Miguel Food Corp. sells the same product "San Mig Light" to SM Supermalls as it would to Topway grocery stores.

Retail Price Maintenance is also prohibited - a manufacturer cannot require dealers to charge a specified retail price for its product, although they can recommend an SRP or Suggested Retail Price. The manufacturer cannot refuse sale to the retailer who chooses to sell low or high. Pricing across Channel Levels Price competition is a core element of our free market economy. In setting prices companies are not free to do whatever they wish. Many Federal, State and even local laws govern the rules of fair pricing.

The most important are; Sherman
Robinson-Patman Acts The Sherman Antitrust Act is a landmark federal statute on competition law passed by Congress in 1890. It prohibits certain business activities that reduce competition in the marketplace, and requires the United States federal government to investigate and pursue trusts, companies, and organizations suspected of being in violation. It was the first Federal statute to limit cartels and monopolies, and today still forms the basis for most antitrust litigation by the United States federal government. Sherman Antitrust Act The Clayton Antitrust Act of 1914, was enacted in the United States to add further substance to the U.S. antitrust law regime by seeking to prevent anticompetitive practices in their incipiency. The Clayton Act specified particular prohibited conduct, the three-level enforcement scheme, the exemptions, and the remedial measures. Clayton Act In general, the Act prohibits sales that discriminate in price on the sale of goods to equally-situated distributors when the effect of such sales is to reduce competition. Price means net price and includes all compensation paid. The seller may not throw in additional goods or services. Injured parties or the US government may bring an action under the Act. Robinson–Patman Act Price-Fixing is ILLEGAL, and the government does not accept any excuse for price-fixing. Before After Marketing Ad - Seraphina's Beauty soap Thanks for listening! Marketing Ad - Seraphina's Beauty soap Datu, Prince Billy M.
Dela Pena, Cherry Rose
Balingan, Emelyn
Dela Cruz, Geneva
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