MARK4210 Class 17 pricing complete.pdf - Pricing Strategy...

Pricing Strategy
MARK4210 Spring 2018

Situation Analysis
(Customer, Competitor, Company)
Market Selection
(Segmentation, Targeting, Positioning)
Marketing Mix Formulation
(Product, Distribution, Pricing, Promotion)
- Quantitative Analysis
- Consumer Behavior
Simulation Game
PharmaSim
Elements of Marketing Strategy Fundamentals Application
Course Roadmap

Agenda

The Importance of Pricing

Common Pricing Strategies

Pricing Factors

Differential Pricing

The Importance of Pricing

Refresher:
Common Pricing Strategies

Profit-oriented strategies

Target profit

Target return on sales

Target return on investment

Cost-oriented strategies

Standard markup / Cost-plus

Experience curve

Demand-oriented strategies

Skimming

Penetration

Prestige

Competition-oriented strategies

Loss leader

The Big Mac Index
Source: The Economist

Pricing Factors

Company objectives

Cost

Competition

Context

Customers

Pricing Factors: Cost
Parameter Implications for Pricing Strategy
Fixed Cost/Variable
Cost Ratio
• High FC:VC ratio  ???
• High VC:FC ratio  ???
Economies of Scale • If scale economies are substantial, and/or expanded operations
lower costs, prices may be lowered to gain market share
Firm cost structure
compared to
competitors
• Lowest cost producer will earn additional profits by maintaining
competitive prices – earnings reinvested back to aggressive
promotions, increase market share
• Cost-disadvantaged producer cannot effectively lower price as it
can trigger a losing price war
Volume sensitive  increase sales volume to increase profit
Price sensitive  increase price to increase profit
Source: Strategic Marketing Asia Edition, Jain & Haley, Cengage Learning, 2009


Cost sets the floor price. But, cost does not dictate pricing. Most
of the time consumers don’t care about the cost.