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Transcript: PRICing strategy Pricing objectives Pricing Objectives SALES OR MARKET SHARE (a price lower than the high quality competitors but higher than the classic quality competitors) PROFIT (25% of margin) CONSUMER SATISFACTION (It's our best quality product) Estimation of the demand Estimation of demand We did a survey to estimate customers' Willingness-to-pay for our 300g package of Crackheart Results Results On average the highest price consumers are willing to pay is 3,90€ On average the ideal price for consumers is 3,50€ On average consumers will buy 11 bags of Crackheart per year Estimation Estimation of the demand Target 25 - 55 years Population of this age group in France : approximately 25 millions Estimation : 1% of them will consume our product, so about 250 000 We estimate they will buy 10 per year We could expect to sell 2 500 000 bags of Crackheart per year Cost Costs Fixed cost 870 000€ per year Variable cost 3 500 000€ per year Total cost 4 370 000€ per year Fixed cost for a year : 870 000€ Rent : 500 000€ Equipment : 20 000€ the machine cost 200 000€ and we think it will work 10 years (200 000 : 10) Executive pay : 300 000€ Maintenance : 50 000€ Cost for 1Kg of Crackheart : 3,79€ Raw material : 3,28€ 4kg of potato : 2,00€ 600g of bolognese : 0,48€ 2L of oil : 0,80€ Staff : 0,01€ Packaging : 0,50€ 1kg of bolognese : 0,80€ 1kg of potato : 0,50€ 1L of oil : 0,40€ Variable cost for a year : 3 500 000€ (cost for a 300g bag 1,14) 1,14 x 2 500 000 Cost of a bag of Crackheart 1,75€ With a margin of 25% we earn 0,58€ per bag We sell the bag 2,33€ at the retailers Competitor's Prices Competitors We expect sell our product to consumers 3,29€ (10,97€ per Kg) with a 50% margin for supermarkets, it would be between high quality chips (Tyrrells, N.A!) and classic quality chips (Lays, Pringles, Curly) Cost for 1 bag : 1,75€ Sale price to mass-distribution : 2,19€ Sale price to consumers : 3,29€ SALES OR MARKET SHARE : a price lower than the high quality competitors but higher than the classic quality competitors PROFIT : 25% of margin CONSUMER SATISFACTION : It's our best quality product Accomplished objectives

Pricing Presentation

Transcript: by - Abhay, Justin and Shawn PRICE Definition Price - Definition Price refers to the amount of money a customer is prepared to offer in exchange for a product. A price set too high could mean lost sales unless superior benefits are offered. A price set too low may give customers the impression that the product is ‘cheap and nasty’. Somewhere between these extremes is a correct price for a product. For example, clothes with designer labels, such as Nike, Bardot, Roxy and Billabong, these labels can set higher prices for their garments than clothing sold under the Target or Kmart brand labels. Information on Pricing Information Methods Pricing Methods For pricing a product, the business must consider many factors like competition, regulations, level of economic activity and location. The Three main pricing methods are: - Cost-based - Market-based - Competition-based Pricing method provides ‘Basic price’ for each product. Basic price is adjusted depending on the marketing objectives and conditions within the workplace. It is a pricing method derived from the cost of producing or purchasing a product and then adding a markup. Markup is a predetermined percentage that a business adds to the cost of a product to determine its basic price. Cost + (Cost × Markup percentage) = Price Cost-based Pricing Cost-Based If a manager of a clothing store buys 100 t-shirts at $50 each and applies an 80% markup on cost, the price to the consumer will be $90 per item. This same percentage mark-up might be applied to all products in the store. Example of Cost-based Pricing Example 1. Difficulty in accurately determining an appropriate markup percentage. 2. The product is priced after production and associated costs are incurred without talking into account the other elements of the marketing mix or state of the market. Disadvantages of Cost-based Pricing Disadvantages It is a method of setting prices according to the interactions between the levels of supply and demand, whatever the market is prepared to pay. Supply is the quantity of a product businesses are willing to offer for sale at a particular price. Demand is the quantity of a product consumers are willing to purchase at a particular price. When demand for a product is greater than it’s supply, there will be a shortage in the market. Conversely, when the supply of a product is greater than its demand, a surplus will exist in the market. Market-based Pricing Market-Based Shortage example, if 100 prospective buyers attend an art auction but there is only one particular type of painting offered for sale, the price will rise. As the price rises, buyers will progressively drop out of bidding until the final buyer is successful. Surplus example, bananas are cheaper in summer months. Examples of Market-based Pricing Exmaple However, this method can be difficult to apply because the levels of supply and demand will constantly change. Disadvantages of Market-based Pricing Disadvantages It is where the price covers costs (costs of raw materials and the cost of operating the business) and is comparable to the competitor’s price. Most products are available from more than one business. Businesses, therefore, need to consider the competition when making their pricing decisions as consumers compare prices during a major purchase. Once a business has established a base price, it can then decide to choose a price either: below to that of competitor, equal to that of competitor or above to that of competitor. Competition-based Pricing Competition-Based Competition-based pricing is often used when there is a high degree of competition from businesses producing similar products. Strategies Pricing Strategies Once the basic price has been set using the pricing method(s), the business will fine tune this price in line with its pricing strategy. It’s common for a business to use multiple pricing strategies at once even for the same product. The use of the strategy depends on: - Its marketing objectives - The life cycle of the product - The market for the product - The degree of product differentiation - The level of economic activity Example: Internet and e-commerce expansion weakened some businesses control on the prices. For example the widespread use of bundle pricing common with telecommunications businesses, as evidenced by the advertisements from mobile phone companies, internet providers and cable television operators offering all kinds of packages. Information on Pricing strategies Information The pricing strategy will have to be modified depending on changes within the external business environment, especially technology influences. It occurs when a business charges the highest possible price for the product during the introduction stage of its life cycle. Early purchasers (adopters) of innovative electronic equipment fall into this category. The objective is to recover the costs of research and development as quickly as possible, before competition enters the market. For example, Price

Pricing Presentation

Transcript: Price Discrimination Initiating Price Changes Price Differentiation 2nd Degree Questions? --Different customer groups are charged different prices for the same products --same product is priced differently at different locations even though the cost of the product is the same Unbundling Price once finished Image Pricing 3. Competitors must not be able to undersell the firm in the higher price segment Increase seller charges less to buyers who buy a larger volume Location Pricing 4. Cost of segmenting and policing the market must not exceed the extra revenue derived from price discrimination Escalator clauses 5. The practice must not breed customer resentment 6. It must be legal Great Value!? Reduction of size 2. Members in the lower price segment must not be able to resell to the higher price segment 3rd Degree Hot Item!? Todays cost + Inflation --the same product is priced at two different levels based on different images held by different buyers Reduction of discounts - Different versions of the product are priced differently but not proportionately to their costs Replaced?! We are never doing a prezi again... -Adjusting basic price to accommodate differences in customers, products, and locations -Price varied by time of day/week/month Customer Segment Pricing 1. Market must be segmentable and the segments must show different intesities of demand Location Pricing Reduction seller charges a separate price to each customer depending on the intensity of his or her demand Responding to Price Changes --Pricing for the same product is different because of different distribution channels 1st Degree Channel Pricing Faulty?! 6 factors for price discrimination to work Bad Quality!? Delayed quotation pricing the seller charges different amounts to different classes of buyers Product Form Pricing

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