kotler11_exs - Pricing Considerations and Approaches and...

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Unformatted text preview: Pricing Considerations and Approaches and Cha pte r 11 Objectives • Unde rs ta nd the inte rna l fa ctors Unde a ffe cting a firm’s pricing de cis ions . • Unde rs ta nd the e xte rna l fa ctors Unde a ffe cting pricing de cis ions , including the impa ct of cons ume r pe rce ptions of price a nd va lue . pe • Be a ble to contra s t the thre e Be g e ne ra l a pproa che s to s e tting price s . p rice Case Study Pric e line .c o m P ric • “B uye r-drive n Buye c o mme rc e ” c o nc e pt o ffe rs lo we r pric e s to c o ns ume rs and the ability to s e ll e xc e s s inve nto ry to s e lle rs to • 1 3.5 millio n us e r 13.5 c us to me r bas e • Mo s t de als re late to Mo trave l o r time s e ns itive / pe ris hable s e rvic e s pe • No t all ve nture s have No be e n pro fitable be • S o me c us to me rs find it diffic ult to c o mmit to purc has e p rio r to le arning What is Price? Pric e Has Many Name s P ric • • • • • Re nt Fe e Ra te Commis s ion As s e s s me nt • • • • • Tuition Fa re Toll P re mium Re ta ine r • Bribe Bribe • S a la ry • Wa ge Wa • Inte re s t Inte • Ta x Ta Definition • P rice The a mount of mone y cha rge d for a The p roduct or s e rvice , or the s um of the va lue s tha t cons ume rs e xcha nge for the be ne fits of ha ving or us ing the product or s e rvice . p roduct What is Price? • Dyna mic P ricing on the We b a llows Dyna S ELLERS to: Cha rge lowe r price s , re a p highe r ma rgins . Monitor cus tome r be ha vior a nd ta ilor Monitor offe rs . o ffe C ha nge price s on the fly to a djus t for Cha cha nge s in de ma nd or cos ts . c ha Ne gotia te price s in online a uctions a nd Ne e xcha nge s . What is Price? • Dyna mic P ricing on the We b Dyna a llows BUYERS to: G e t ins ta nt price compa ris ons from Ge thous a nds of ve ndors . thous Find a nd ne gotia te lowe r price s . Ne gotia te price s in online a uctions Ne a nd e xcha nge s . What is Price? • P rice a nd the Ma rke ting Mix: Only e le me nt to produce re ve nue s Mos t fle xible e le me nt Ca n be cha nge d quickly • P rice Compe tition • Common P ricing Mis ta ke s Factors to Consider When Setting Price Inte rnal Inte Fac to rs • Marke ting obje ctive s • Marke ting m ix Marke s trate gie s • Cos ts • O rganiz ational Organiz cons ide rations c ons • Ma rke t pos itioning Ma influe nce s pricing s tra te gy • Othe r pricing obje ctive s : S urviva l Curre nt profit ma ximiza tion Ma rke t s ha re le a de rs hip P roduct qua lity le a de rs hip • Not-for-profit obje ctive s : P a rtia l or full cos t re cove ry S ocia l pricing Factors to Consider When Setting Price Inte rnal Inte Fac to rs • Marke ting obje ctive s • Marke ting m ix Marke s trate gie s • Cos ts • O rganiz ational Organiz cons ide rations c ons • P ricing mus t be ca re fully c oordina te d with the o the r ma rke ting mix e le me nts • Ta rge t cos ting is ofte n Ta u s e d to s upport product p os itioning s tra te gie s ba s e d on price ba • Nonprice pos itioning ca n Nonprice a ls o be us e d Factors to Consider When Setting Price Inte rnal Inte Fac to rs • Marke ting obje ctive s • Marke ting m ix Marke s trate gie s • Cos ts • O rganiz ational Organiz cons ide rations c ons • Type s of cos ts : Va ria ble Fixe d Tota l cos ts • How cos ts va ry a t How d iffe re nt production le ve ls will influe nce price s e tting • E xpe rie nce (le a rning) Expe curve e ffe cts on price c urve Factors to Consider When Setting Price Inte rnal Inte Fac to rs Marke ting obje ctive s • Marke ting obje ctive s • Marke ting m ix Marke s trate gie s • Cos ts • O rganiz ational Organiz cons ide rations c ons • Who s e ts the price ? S ma ll compa nie s : CEO or top ma na ge me nt top La rge compa nie s : La Divis iona l or product line ma na ge rs ma • P rice ne gotia tion is c ommon in indus tria l s e ttings • S ome indus trie s ha ve pricing de pa rtme nts p ricing Factors to Consider When Setting Price Exte rnal Exte Fac to rs • N ature of m arke t Nature and de m and a nd • C om pe titors ’ cos ts , Com price s , and offe rs p rice • O the r e nvironm e ntal Othe e le m e nts • Type s of ma rke ts P ure compe tition Monopolis tic compe tition Oligopolis tic compe tition P ure monopoly • C ons ume r pe rce ptions of Cons price a nd va lue p rice • P rice -de ma nd re la tions hip re De ma nd curve P rice e la s ticity of de ma nd Factors to Consider When Setting Price Exte rnal Exte Fac to rs • N ature of m arke t Nature and de m and a nd • C om pe titors ’ cos ts , Com price s , and offe rs p rice • O the r e nvironm e ntal Othe e le m e nts • C ons ide r compe titors ’ cos ts , Cons p rice s , a nd pos s ible re a ctions whe n de ve loping a pricing s tra te gy • P ricing s tra te gy influe nce s the na ture of compe tition na Low-price low-ma rgin Low-price stra te gie s inhibit compe tition s tra High-price high-ma rgin High-price stra te gie s a ttra ct compe tition s tra • Be nchma rking cos ts a ga ins t Be the compe tition is re comme nde d re Factors to Consider When Setting Price Exte rnal Exte Fac to rs • N ature of m arke t Nature and de m and a nd • C om pe titors ’ cos ts , Com price s , and offe rs p rice • O the r e nvironm e ntal Othe e le m e nts • Economic conditions Affe ct production cos ts Affe Affe ct buye r pe rce ptions of Affe price a nd va lue p rice • R e s e lle r re a ctions to Re price s mus t be cons ide re d p rice • G ove rnme nt ma y re s trict Gove or limit pricing options or • S ocia l cons ide ra tions ma y be ta ke n into a ccount be General Pricing Approaches • C os t-Ba s e d P ricing: Cos t-Plus Pricing Cos C os Adding a s ta nda rd ma rkup to cos t Ignore s de ma nd a nd compe tition P opula r pricing te chnique be ca us e : It s im plifie s the pricing proce s s It Price com pe tition m ay be m inim iz e d P rice It is pe rce ive d as m ore fair to both buye rs and s e lle rs a nd General Pricing Approaches Cos t-Ba s e d P ricing Exa mple C os Va ria ble cos ts : $20 Fixe d cos ts : $ 500,000 E xpe cte d s a le s : 100,000 units De s ire d S a le s Ma rkup: 20% Expe Va ria ble Cos t + Fixe d Cos ts /Unit S a le s = Unit Cos t Va $20 + $500,000/100,000 = $25 pe r unit Unit Cos t/(1 – De s ire d Re turn on S a le s ) = Ma rkup P rice $25 / (1 - .20) = $31.25 General Pricing Approaches • C os t-Ba s e d P ricing: B re ak-Eve n Cos Analys is and Targe t Profit Pricing A nalys Bre a k-e ve n cha rts s how tota l cos t a nd Bre tota l re ve nue s a t diffe re nt le ve ls of unit volume . volume The inte rs e ction of the tota l re ve nue a nd The tota l cos t curve s is the bre a k-e ve n point. tota C ompa nie s wis hing to ma ke a profit mus t Compa e xce e d the bre a k-e ve n unit volume . General Pricing Approaches Bre a k-Eve n Ana lys is a nd Ta rge t P rofit P ricing Revenues 1000 Thousands of Dollars Target Profit $200,000 800 Total Costs Break-even point 600 400 Fixed Costs 200 0 10 20 30 40 Sales Volume in Thousands of Units Quantity To Be Sold To Meet Target Profit General Pricing Approaches • Va lue -Ba s e d P ricing: Us e s buye rs ’ pe rce ptions of va lue ra the r Us tha n s e lle r’s cos ts to s e t price . tha Me a s uring pe rce ive d va lue ca n be difficult. C ons ume r a ttitude s towa rd price a nd Cons qua lity ha ve s hifte d during the la s t de ca de . q ua Introduction Introduction of le s s e xpe ns ive ve rs ions of e s tablis he d brands has be com e com m on. General Pricing Approaches • Va lue -Ba s e d P ricing: Bus ine s s -to-bus ine s s firms s e e k to re ta in Bus pricing powe r p ricing Value -adde d s trate gie s can he lp V alue Va lue pricing a t the re ta il le ve l E ve ryday low pricing (EDLP) vs . high-low pricing p ricing General Pricing Approaches • Compe tition-Ba s e d P ricing: Als o ca lle d going-ra te pricing Ma y price a t the s a me le ve l, a bove , or Ma be low the compe tition be Bidding for jobs is a nothe r va ria tion of Bidding compe tition-ba s e d pricing c ompe S e ale d bid pricing ...
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