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.
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