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5-2008-2-fall_Assorted.Pricing.Strategies.and.tactics

5-2008-2-fall_Assorted.Pricing.Strategies.and.tactics -...

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Opportunities for Implementation of  Ideas from Our Pricing Discussion 1
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Cost-Oriented Pricing Ideas 2
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3 Question: If Costs Go Up? What Should You Do? Raise the price? Or decrease the “size” of the delivered product/service?
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Answer is Often “Shrink the Product” (Or Decrease the Amount of Service per Dollar) Example: Wrigley gum packages now have 15 sticks, not 17 Example: Dreyer’s and Edy’s ice cream (big issue of rising costs of ingredients --- November, 2002) Introduced the 1.75 gallon size ice cream container (1 pint less than previous “standard” size) Now only 1.5 gallons (2008) 4
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5 Then Now
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Of Course, Can Differentiate by Not  Following the Competition 6
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Skippy Peanut Butter. Standard 18 ounce jar of the peanut butter is being replaced by a very similar looking, but smaller, 16.3 ounce jar, but the price isn't getting smaller . 8 Source: AP News Story,  Portland Press Herald Sept. 2, 2008
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Some Tropicana Orange  Juice products are getting  smaller. Note their new “easy-pour”  pitcher. The bottle is getting smaller, and the  price is staying about the same.    Instead of 96 ounces, you get 89  ounces in a redesigned container.   Tropicana spokeswoman Karen May  says it is intended to make it easier  for any consumer, especially  children, to pour a glass of juice.  10
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Why might this be the better strategy? Price change more noticeable and/or less acceptable Often done to pass on increased costs Perhaps consumers understand this and perceive it as “fair” Dirty pool? Consumers don’t notice shrink in pkg. size BUT, some people DO notice! 12 http://www.youtube.com/watch?v=f4RNb3tt0LM
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13 How to Lessen Impact of   Price  Increases (Lessen Impact on Both Competition and Consumer) If faced with rising costs and need to pass them along to consumer, Don’t Change the List Price Cut attractiveness of related deals take away discounts, deals, and/or services in effect, price increases with less adverse effect
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14 Should Components of Product Bundles Be  Priced According to Demand and Costs? Two Axioms of Pricing Relative importance to (desire of) customer may not match relative costs Don’t have to have the same markup on all parts of the product service bundle Examples: Options for a new car Different parts of cell phone service (phone vs. minutes)
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Value-Oriented Pricing Ideas 15
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Quantity (Volume) Discounts  are OK Especially if increased volume lower mfr. Costs But LOYALTY DISCOUNTS make more sense Customer receives loyalty discounts as long as you get a certain level of sales = certain % of total purchases Example: customer gets quantity discount as long as total = (what you know is) at least 75% of all its purchases Most business buyers will not buy ALL from you --- however a good loyalty discount ( WHY?)
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17 Yield Management
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