MarketingNotes05 - Introduction to Pricing ~\If~...

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Unformatted text preview: Introduction to Pricing ~\If~ \1':.Ifla!!er~ Rallng of Markl'llIIg IS!lUCS ",ou!>1 . goods '~""comp." . toofl Information of Managers on Price-Relevant Factors (Self-Eval,,";nn<' Percentage of Respondents Who Think They Are Wel intonned on Venable OOS! rUled costs Product value to customer Price response leammg curve etlects Pnce acceptance 2'" 7S'l. Nickels and Dimes Matter! CEO of a billion dollar company: "Get me an extra nickel or a dime--- every day. Find a way to convince the customer that we are worth a little extra. Pick up those extra nickels and dimes all around the world--- every day --- and they drop right into our bottom line --- and pretty soon--- we are talking big improvements to our net Income." :q~ lt: pau~ l"IK -d !lOrn rWbt'11 J ('OIa'~ af)lj Helrl'l8m 5<rnr-~ Pow~rP'1C~~ Fffh!P r~r-;'961 Pricing Right Fastest and most effective way to increase profits Consider the average income statement of an S&P 1500 company: a price rise of 1 percent. if volumes remained stable. would generate an 8 percent increase in operating profits The Power of a 1 10 Price Increase for Average S&P 1500 Company Pr~ lncreau Prof!tmcrea$ll of 1,0% of 8.0% 19.2 13.5 ,...1 12.5 (Assumes that "all else". especially umt sales, does not change.) Re\lllnues Fixed costs Soocee' Com;Mlat McKlnser analysis Variable Operating costs profits Pricing Right Fastest and most effective way to increase profits for an AVERAGE S&P 1500 Company The impact of an 8 % increase in operating profits due to a 1% increase in price is: nearly 50 ~'o greater than the Impact of a 1 ~'o fall In vanable costs more than 3 times greater than the Impact of a 1 % Increase in volume About 6 times the impact of an 1 % improvement In Fixed costs I 0;.....,''''' , I Comparison of GtotM11200 C otn~ ies Determinants of Profit Price 1 '0 Increase-+ Variable Unit Costs 1 ~o decrease-+ Sales Volume 1~o Increase-+ Fixed Costs 1~'odecrease-+ "To bP. read as With everything else unchanged (InCluding unl sales), a 1'", Increase III pnce m n o a s o s p m fl'b \l/l~ (,. 7,1% * '1,6% # 2 '5% \ 1.5% "if. To be read as: With everything else ~h:~r,~ 1~C~~=f(1.:~~ sales (1e(rease) 1\ V,L 11Cl'eases~It by '1.6%. 8 Nickels and Dimes Matter! ,_" Calculated Value of a 1 % Increase in Price on Net Income Coca-Cola Fuji Photo Nestle Ford Philips 6.4% 16,7% 17,5% 26.0% 28.7% (Dolan and Simon, Power Pricing, 1996) Average Impact for Different Industries of a 1 /0 Increase in Price Technology Communications 8.6% High-tech and electronIcs 11.4% Financial Services Investments 1.8% Banking 3.0% Insurance 10.1% Complex Assembly Mfg. Automotive 22.0% Aerospace and 11.1% defense 10 Average Impact for Different Industries of a 1 % Increase in Price Health Services Pharmaceuticals 6.1% Healthcare 9.8% Process Industries Chemicals 12.3% Oil and gas 9.3% Metals and mining 12.7% Paper 10.4% Supply Management Transportation 13.5% Consumer products...
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This note was uploaded on 05/12/2010 for the course MAR 5805 taught by Professor Sawyer during the Fall '08 term at University of Florida.

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MarketingNotes05 - Introduction to Pricing ~\If~...

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